NZD/USD flat lined around mid-0.6900s, awaits Powell’s speech

• NZD/USD attracted some buying on Friday amid a modest USD weakness.
• Hawkish Fed expectations might underpin the USD and cap gains for the pair.
• The focus remains on Fed Chair Powell’s speech at the Jackson Hole Symposium.

The NZD/USD pair bounced around 20 pips from daily lows and was last seen trading in the neutral territory, around mid-0.6900s heading into the European session.

The pair managed to find some support near the 0.6930 area on Friday and for now, seems to have stalled the previous day's rejection slide from the 50-day SMA amid a modest US dollar downtick. A generally positive tone around the equity markets was seen as a key factor that undermined the safe-haven greenback and acted as a tailwind for the perceived riskier kiwi.

However, speculations that the Fed might still begin rolling back its pandemic-era stimulus in 2021 should help limit the USD downside and cap gains for the NZD/USD pair. The market expectations for an earlier move by the US central bank were reinforced by the overnight comments from two Fed officials, suggesting a faster pace of reducing the massive asset purchases.

Speaking to CNBC, St. Louis Fed President James Bullard said that he was sceptical that inflation would moderate and would want asset tapering to be completed by the first quarter of 2022. Adding to this, Dallas Fed President Robert Kaplan said the strength of the US economy still puts the Fed on track to begin reducing its monthly bond purchases in October or soon after.

Hence, the market focus will remain glued to Fed Chair Jerome Powell's speech at the Jackson Hole Symposium, due later during the North American session. Investors will look for clues about the likely timing for the Fed's tapering plan. This will play a key role in influencing the near-term USD price dynamics and provide a fresh directional impetus to the NZD/USD pair.

Heading into the key event risk, traders might take cues from the release of the Fed's prefered inflation gauge – Core PCE Price Index. This, along with the broader market risk sentiment, might provide some impetus to the NZD/USD pair and allow traders to grab some short-term opportunities.

Technical levels to watch