NZD/USD struggles for a firm direction, stuck in a range below 0.6800 mark

• NZD/USD was seen oscillating in a narrow trading band near the weekly high on Wednesday.
• A positive risk tone extended support to the perceived riskier kiwi amid subdued USD demand.
• Investors now look forward to the US consumer inflation figures for a fresh directional impetus.

The NZD/USD pair lacked any firm directional bias and remained confined in a narrow trading band near the weekly high, just below the 0.6800 mark through the early European session.

The pair, so far, has struggled to capitalize on the previous day's positive move of over 50 pips from 0.6740-35 support zone, though a combination of factors continued acting as a tailwind. As investors looked past softer Chinese inflation figures, a generally positive tone around the equity markets extended some support to the perceived riskier kiwi. Apart from this, modest US dollar weakness also contributed to limiting the downside for the NZD/USD pair.

In fact, the USD Index languished near a two-month low amid a further decline slide in the US Treasury bond yields, aggravated by Fed Chair Jerome Powell's less hawkish comments on Tuesday. During his renomination hearing before the Senate, Powell said that it could take several months to decide on running down the central bank's balance sheet. This, in turn, helped ease fears about a sudden withdrawal of monetary support and boosted investors' confidence.

That said, the prospects for an eventual Fed lift-off in March 2022 held back traders from placing aggressive bearish bets around the greenback and capped gains for the NZD/USD pair. Investors also seemed reluctant and preferred to move on the sidelines ahead of Wednesday's release of the latest US consumer inflation figures. The data, due for release later during the early North American session, will influence the USD and provide a fresh impetus to the NZD/USD pair.

Even from a technical perspective, the recent two-way price moves witnessed over the past one week or so constitutes the formation of a rectangle on short-term charts. This points to indecision over the NZD/USD pair's near-term trajectory and further warrants some caution. Hence, it will be prudent to wait for a strong follow-through buying before confirming that the pair has bottomed out and positioning for any meaningful recovery move in the near term.

Technical levels to watch