- NZD/USD struggled to preserve early gains to a multi-week high amid resurgent USD demand.
- The prevalent risk-on environment helped limit any further slide for the perceived riskier kiwi.
- Investors now look forward to the US economic releases for some short-term opportunities.
The NZD/USD pair managed to rebound a few pips from the early European session low and was last seen hovering in the neutral territory, around the 0.6825-30 region.
The pair struggled to capitalize on its early positive move and witnessed a modest pullback from the vicinity of mid-0.6800s, or a four-week high touched earlier this Thursday. The intraday pullback was exclusively sponsored by resurgent US dollar demand, though the underlying bullish tone in the markets helped limit the downside for the NZD/USD pair.
The greenback made a solid comeback and reversed the previous day's slide back closer to the monthly low amid a fresh leg down in the European currencies. This, along with the overnight sharp spike in the US Treasury bond yields, acted as a tailwind for the greenback and prompted some selling around the NZD/USD pair at higher levels.
In fact, the yield on the benchmark 10-year US government bond shot to 1.56% for the first time since November 29 after a $56 billion auction of seven-year notes saw weak demand. This, along with the Fed's hawkish outlook, indicating at least three rate hikes next year, pushed the two-year yield to the highest since March 2020.
Meanwhile, the optimism led by signs that the Omicron variant might be less severe than feared helped offset worries about the economic impact of the continuous surge in new COVID-19 cases. This was evident from an extension of the recent bullish run in the equity markets, which, in turn, acted as a tailwind for the perceived riskier kiwi.
The mixed fundamental backdrop makes it prudent to wait for a strong follow-through selling before placing any aggressive bearish bets around the NZD/USD pair amid thin end-of-year trading volumes. Traders now look forward to the US macro data – Weekly Initial Jobless Claims and Chicago PMI – for some short-term opportunities.