NZD/USD extends intraday bounce from YTD low, moves back above mid-0.6700s

• NZD/USD staged a modest recovery from a fresh YTD low touched earlier this Wednesday.
• A modest USD weakness, a positive risk tone extended support to the perceived riskier kiwi.
• The upside is likely to remain capped ahead of the highly-anticipated FOMC policy decision.

The NZD/USD pair built on its steady intraday recovery move from a fresh YTD low touched earlier this Wednesday and moved back above mid-0.6700s during the early European session.

The US dollar struggled to capitalize on the previous day's positive move to a one-week high and edged lower through the early part of the trading on Wednesday. This, in turn, was seen as a key factor that assisted the NZD/USD pair to reverse an intraday dip to the 0.6725 region, or the lowest level since November 2020.

Apart from this, a mildly positive tone around the equity markets further benefitted the perceived riskier kiwi, though any meaningful upside for the NZD/USD pair still seems elusive. Concerns about the economic fallout from the spread of the new Omicron variant of the coronavirus should keep a lid on any optimism.

Moreover, growing acceptance that the Fed would adopt a more aggressive policy response to contain stubbornly high inflation should act as a tailwind for the greenback. Hence, the market focus will remain glued to the outcome of a two-day FOMC monetary policy meeting, scheduled to be announced later this Wednesday.

Heading into the key event risk, traders might be reluctant to place aggressive bullish bets around the NZD/USD pair. This further warrants some caution before confirming that the pair has bottomed out in the near term. Traders now look forward to the US Retail Sales data for some impetus during the early North American session.

Technical levels to watch