NZD/USD slightly recovers from YTD low at 0.6726, ahead of the Fed

• The New Zealand dollar extends its slide for three consecutive days, falling 0.14%.
• The market sentiment is mixed as investors prepare for the Fed.
• Market participants expect a faster bond taper and at least two rate hikes by 2022.
• NZD/USD Technical Outlook: It has a downward bias, though it could be an event of “buy the rumor, sell the fact.”

The NZD/USD slides for the third day in a row, trading at 0.6730 during the New York session at the time of writing. The market sentiment is mixed, as shown by European and US equities. In Europe, most indices fluctuate between gainers and losers, while in the US, all are in the red, ahead of the Fed. 

As shown by the recent price action in the NZD/USD, investors are preparing for the Fed, except for Monday, when the pair dropped below the 0.6800 figure. In the last two days, the FX market has been calm, with the NZD/USD trading within familiar ranges, within 0.6700-0.6750.

In the overnight session, the NZD/USD pair peaked at around 0.6760, then fell towards the December 14 low at 0.6734, courtesy of greenback demand. However, the downward move was short-lived, bouncing back towards 0.6750s, though faced robust resistance, pushing the price towards the S1 daily pivot at 0.6726. 

What’s priced in?

Market participants expect that the Fed would increase the pace of the bond taper to $30 Billion so that the US central bank could finish its stimulus by the end of  March 2022. In addition, money market futures expect at least two hike rates by 2022, three in 2023, and two more in 2024, each one of 25 basis points, with rates closing almost to 2%. 

In the meantime, US bond yields are almost flat. The US 10-year Treasury yield sits at 1.444%, while the US Dollar Index edges up 0.01%, at 96.58.

The US Economic docket featured Retail Sales for November, which rose by 0.3% on a monthly reading, lower than the 0.8% expected. However, market participants mainly ignored them, as they remained tuned into the Federal Reserve monetary policy decision.

NZD/USD Price Forecast: Technical outlook

The New Zealand dollar is under downward pressure as market participants prepare for the Fed. The pair is tilted to the downside, as shown by the daily moving averages (DMAs) residing above the spot price, with shorter time-frames below the longer ones. Further, the first line of defense for NZD bulls would be the psychological 0.6700, which, once broken, could give way for USD bulls towards October 2020 cycle lows, around 0.6550.

On the downside, the key levels to watch are 0.6700, followed by support provided by a downslope support trendline lying around 0.6680s, followed by 0.6650.

To the upside, the first resistance would be 0.6760, followed by December 14 high at 0.6770. A breach of the latter would expose the December 9 cycle high at 0.6822.