- NZD/USD edged lower on Wednesday and eroded a part of the overnight gains to multi-day tops.
- A generally softer risk tone was seen as a key factor exerting pressure on the perceived riskier kiwi.
- The downside remains limited amid sustained USD selling and ahead of the FOMC meeting minutes.
The NZD/USD pair traded with a mild negative bias through the early European session and dropped to fresh daily lows, around the 0.7215 region in the last hour.
The pair witnessed some selling during the first half of the trading action on Wednesday and eroded a major part of the overnight strong gains to four-day tops. A generally weaker tone around the equity markets turned out to be a key factor that exerted some pressure on the perceived riskier kiwi. That said, sustained US dollar selling bias might help limit any deeper losses for the NZD/USD pair.
Given the Fed's stubbornly dovish view that any spike in inflation will be transitory, investors have been scaling back their expectations for an earlier than anticipated lift-off. This, along with Tuesday's disappointing US housing market data, acted as a headwind for the greenback. In fact, the key USD Index fell further below the 90.00 round-figure mark, to the lowest level since January.
Apart from this, investors might also refrain from placing any aggressive bets, rather prefer to wait on the sidelines ahead of the FOMC meeting minutes, due for release later during the US session. This makes it prudent to wait for some strong follow-through selling before confirming that the recent positive move witnessed over the past one week or so has run out of steam and placing fresh bearish bets.
Heading into the key event risk, the broader market risk sentiment and the USD price dynamics will continue to play a key role in influencing the NZD/USD pair and produce some trading opportunities.