NZD/USD struggles for direction, stuck in a range around 0.6800 ahead of FOMC minutes

• A combination of diverging forces failed to provide any impetus to NZD/USD on Wednesday.
• The risk-off impulse was seen as a key factor that capped gains for the perceived riskier kiwi.
• Subdued USD demand extended some support ahead of the US macro data/FOMC minutes.

The NZD/USD pair seesawed between tepid gains/minor losses through the first half of the European session and remained confined in a range, just above the 0.6800 mark.

The pair struggled to capitalize on the previous day's bounce from the 0.6765 area or a near two-week low and witnessed a subdued/range-bound price move on Wednesday. Retreating US Treasury bond yields kept the US dollar bulls on the defensive and extended some support to the NZD/USD pair. That said, a softer risk tone acted as a tailwind for the safe-haven greenback and capped gains for the perceived riskier kiwi.

An extended selloff in the US bond markets weighed on the tech sector and prompted traders to take some profits off the table following the recent strong runup in the equity markets to record highs. Apart from this, expectations for a faster policy tightening by the Fed could further lend support to the buck. In fact, the money markets have fully priced in an eventual liftoff by May and two more rate hikes by the end of 2022.

This was evident from the fact that the US 2-year notes, which are sensitive to rate hike expectations along with 5-year notes, soared to levels not seen since February 2020 on Tuesday. Moreover, the yield on the benchmark 10-year bond shot to the highest level since November 24. Hence, the market focus will remain glued to Wednesday's release of the FOMC monetary policy meeting minutes, due later during the US trading session.

In the meantime, traders might take cues from the US macro data – the ADP report on private-sector employment, Building Permits and the final Services PMI. Apart from this, the US bond yields might influence the USD price dynamics. This, along with the broader risk sentiment, should provide some impetus to the NBZD/USD pair and allow traders to grab some short-term opportunities.

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