• NZD/USD witnessed some long-unwinding trade and retreated sharply from multi-month tops.
• The dismal market mood benefitted the safe-haven USD and exerted some heavy pressure.
• Dovish Fed expectations led to a fresh leg down in the US bond yields and capped the USD gains.

The NZD/USD pair maintained its heavily offered tone through the early North American session and was last seen trading near the lower end of its daily trading range, around the 0.6485-80 region.

The pair stalled its recent strong bullish momentum and witnessed a dramatic intraday turnaround on Tuesday from the 0.6580 region, the highest level since January 27. The NZD/USD pair snapped six consecutive days of winning streak and the steep decline of over 100 pips was sponsored by a combination of factors.

As investors digested the latest optimism over a sharp V-shaped global economic recovery, a slight deterioration in the global risk sentiment boosted the US dollar's safe-haven status. This, in turn, prompted some aggressive long-unwinding trade around riskier currencies, including the kiwi – and led to the NZD/USD pair's corrective slide.

Meanwhile, the possibility of a dovish outlook from the Fed – when it announces its policy decision on Wednesday – triggered a fresh leg down in the US Treasury bond yields. In fact, the yield on the benchmark 10-yr US government bond was down around 6%, which kept a lid on any strong USD gains and helped limit deeper losses for the major.

Hence, the key focus will remain on the outcome of a two-day FOMC monetary policy meeting, starting this Tuesday. This makes it prudent to wait for some strong follow-through selling before confirming that the pair might have topped out in the near-term and positioning for any further near-term corrective slide.

In the absence of any major market-moving economic releases, the broader market risk sentiment might continue to influence the USD price dynamics and produce some meaningful trading opportunities around the NZD/USD pair.

Technical levels to watch