NZD/USD maintains its bid tone near 0.6335-40 region, upside potential seems limited

• NZD/USD gains some positive traction amid a modest USD pullback from the weekly high.
• Hawkish Fed expectations, rising US bond yields should help limit losses for the greenback.
• Recession fears weigh on investors’ sentiment and might cap gains for the risk-sensitive Kiwi.

The NZD/USD pair edges higher for the second straight day on Wednesday, albeit struggles to capitalize on the move and remains confined within the previous day's trading range. Nevertheless, the pair sticks to its intraday gains through the early North American session and is currently placed near the daily top, just below mid-0.6300s.

Having failed to find acceptance above the very important 200-day SMA, the US Dollar retreats from a multi-day peak touched earlier today and offers some support to the NZD/USD pair. The USD, for now, seems to have stalled this week's goodish recovery move from over a five-month low, though hawkish Fed expectations should help limit the downside.

The recent upbeat US macro data suggests that the economy remains resilient despite rising borrowing costs and fuel speculations that the Fed may lift rates more than projected. This, in turn, pushes the US Treasury bond yields higher, which, along with a generally weaker tone around the equity markets, should offer support to the safe-haven buck.

Despite the latest optimism over the easing of COVID-19 restrictions in China, worries about a deeper global economic downturn continue to weigh on investors' sentiment. The fundamental backdrop favours the USD bulls and warrants some caution before placing aggressive bullish bets around the NZD/USD pair amid the absence of any relevant market-moving economic data.

Traders might also prefer to move to the sidelines and wait for next week's key US data/even risk - the release of the US consumer inflation figures and the highly-anticipated FOMC policy meeting. Market participants will look for fresh clues about the Fed's rate-hike path, which will influence the USD and provide a fresh directional impetus to the NZD/USD pair.

Technical levels to watch