NZD/USD faces rejection near 0.6200, pares intraday gains to over one-week low

• NZD/USD edged higher for the second straight day amid the ongoing USD profit-taking slide.
• Stronger-than-expected quarterly inflation data from New Zealand also offered some support.
• Rebounding US bond yields helped limit the USD losses and capped the upside for the major.

The NZD/USD pair built on last week's bounce from the 0.6060 area, or its lowest level since May 2020 and gained traction for the second successive day on Monday. The momentum lifted spot prices to over a one-week low, though lacked any follow-through and faltered near the 0.6200 round-figure mark.

Several Federal Reserve officials signalled last week that they did not favour the bigger rate hike that the markets priced in following the release of red-hot US consumer inflation. This, in turn, forced investors to trim their bets for a supersized 100 bps Fed rate hike move in July, which continued undermining the US dollar and offered some support to the NZD/USD pair.

Apart from this, a generally positive tone around the equity markets dragged the safe-haven USD away from a two-decade high. This, along with stronger-than-expected quarterly inflation data from New Zealand benefitted the risk-sensitive kiwi. The risk-on impulse, meanwhile, pushed the US Treasury bond yields higher, which helped limit the USD losses and capped any further gains.

Spot prices have now retreated to the 0.6165 region, warranting some caution before positioning for any meaningful upside. In the absence of any major market-moving US economic data, the NZD/USD remains at the mercy of the USD price dynamics. This further makes it prudent to wait for a strong follow-through buying to confirm that the pair has formed a near-term bottom.

Technical levels to watch