NZD/USD finds strong support at 0.6600 level, advances on easing geopolitical concerns ahead of key upcoming events

• NZD/USD rebounded from the 0.6600 level to move higher on Tuesday, as the kiwi benefitted from strong risk appetite.
• Russia confirming intentions to withdraw some troops from the Ukraine border helped boost sentiment, aiding the kiwi.
• Geopolitics remains in focus, but attention also turns to a barrage of important upcoming US and NZ economic events.

NZD/USD found decent support at the 0.6600 level on Tuesday, rebounding from a dip towards the big figure shortly after the US cash open to current levels in the 0.6630s, where the pair trades about 0.3% higher on the day. That makes it one of the better performing G10 currencies alongside its Aussie counterpart, with the antipodean currencies boosted by a broad improvement in macro risk appetite on an apparent easing of immediate geopolitical risks in Eastern Europe.

Russia said it was partially withdrawing some of its troops from the border with Ukraine, easing fears about an imminent military incursion into the country. However, NATO officials cautioned that it was too soon to say that Russia has decided against invasions and some geopolitical strategists still view the possibility of a flare-up of tensions in the Eastern Ukraine Donbas region as highly likely.

The improvement in market mood was enough to see NZD/USD shrug off a much hotter than expected US Producer Price Inflation report that economists said strengthens the hand of hawkish Fed policymakers arguing for a faster pace of policy tightening. NZD/USD traders will now look ahead to US Retail Sales data and the release of the Fed minutes of the January policy meeting on Wednesday, followed by a barrage of Fed speak on Thursday and Friday. New Zealand Producer Price Inflation data for Q4 will also be in focus during Friday’s Asia Pacific session and will be viewed in the context of how it influences the chances of a 50bps rate hike at the RBNZ’s next meeting.

That might suggest some upside risk for the pair going forward, only that US data and Fed speak will be viewed the same way. Indeed, US money markets on Tuesday were pricing about a 60% likelihood of a 50bps rate hike from the Fed in March. Commentary from the likes of influential Fed policymakers Christopher Waller, John Williams and Lael Brainard on Friday could swing things either way, making for choppy NZD/USD price action.