NZD/USD clings to gains near daily top, holds steady above 0.6800 mark

• NZD/USD gained some positive traction on Tuesday and snapped two days of the losing streak.
• The underlying bullish sentiment in the markets acted as a tailwind for the perceived riskier kiwi.
• Subdued USD demand contributed to the intraday buying, though thin liquidity warrants caution.

The NZD/USD pair maintained its bid tone through the early European session and was last seen hovering near the daily top, around the 0.6815 region.

A combination of supporting factors assisted the NZD/USD pair to attract some buying on Tuesday and snap two successive days of the losing streak. The underlying bullish sentiment – as depicted by a generally positive tone around the equity markets – was seen as a key factor that benefitted the perceived riskier kiwi. Apart from this, subdued US dollar price action provided a modest lift to the major.

Investors turned optimistic amid reports that the new COVID-19 strain may be less severe than the previous Delta variant. Adding to this, studies indicated that Omicron infections are less likely to lead to hospitalization and helped ease fears about the potential economic fallout from the continuous surge in new cases. This, along with sliding US Treasury bond yields, kept the USD bulls on the defensive.

That said, the Fed's hawkish outlook should act as a tailwind for the greenback and keep a lid on any further gains for the NZD/USD pair. It is worth recalling that the so-called dot plot indicated that the Fed officials expect to raise the fed funds rate at least three times next year. Moreover, the end-of-year thin liquidity in the markets could further hold back traders from placing aggressive directional bets.

Hence, it will be prudent to wait for a strong follow-through buying before positioning for any further appreciating move amid absent relevant market-moving macro data. The US economic docket features the release of the Richmond Manufacturing Index, though might do little to provide any impetus. This, in turn, leaves the NZD/USD pair at the mercy of the broader market risk sentiment and the USD price dynamics.

Technical levels to watch