NZD/USD leads G10 gainers below 0.6800 as USD struggles to cheer strong yields

• NZD/USD picks up bids towards intraday high, rebounds from weekly low.
• DXY grinds higher even as Treasury yields refresh multi-day tops.
• NZ policymakers will hold cabinet meeting to discuss traffic light restrictions.
• US housing data, risk catalysts eyed for fresh impulse.

NZD/USD rises to 0.6775, up 0.14% daily while consolidating the previous day’s losses during early Wednesday. In doing so, the Kiwi pair snaps a three-day downtrend to bounce off the weekly low flashed the previous day.

The quote’s recent rebound could be linked to the US dollar’s resistance to track the strong Treasury yields, as well as cautious sentiment ahead of New Zealand policymakers’ cabinet meeting.

“There are 24 Covid-19 cases in the community - the last data Cabinet ministers will consider before meeting this afternoon to discuss current traffic light settings. There are 56 new cases detected at the border,” per NZ Herald.

That said, the US Dollar Index (DXY) seesaws around 95.75-80, up 0.03%, following the biggest daily jump in 12 days the previous day.

It should be noted the US 10-year Treasury yields gained one basis point (bps) to refresh the highest levels since early 2020 around 1.88% by the press time. Coupons of the other key US bond variants, like 2-year and 5-year, also renewed multi-day peaks during the early Asian session during the four-day uptrend before recently grinding higher.

Firmer US Treasury yields exert downside pressure on the equities and commodities but the DXY’s refrain from rising further allows the Kiwi pair traders to pare the previous day’s losses.

In addition to the virus conditions and US Treasury yields, geopolitical risks concerning Russia and Ukraine also challenge NZD/USD traders.

Even so, a corrective pullback can’t be ruled out considering the absence of major data/events, except for the US Building Permits and Housing Starts for December. Also likely to favor the short-term rebound is the absence of Fedspeak ahead of next week’s Federal Open Market Committee (FOMC). However, yields are the key catalysts to watch for clear direction.

Technical analysis

Despite the latest corrective pullback, NZD/USD stays below the 200-SMA on the four-hour chart, backed by bearish MACD signals and downbeat RSI, not oversold. However, the kiwi pair’s further declines hinge on the clear break of an upward sloping support line from December 20, near 0.6750.

On the flip side, 200-SMA and a one-week-long descending trend line, respectively around 0.6790 and 0.6810, will be short-term key hurdles to test NZD/USD rebound.