NZD/USD clings to gains near daily top, holds above 0.6200 amid modest USD weakness

• NZD/USD regains positive traction on Tuesday, though any meaningful upside still seems elusive.
• A generally positive risk tone undermines the safe-haven USD and benefits the risk-sensitive Kiwi.
• The market focus remains on Fed Chair Jerome Powell’s semi-annual congressional testimony.

The NZD/USD pair attracts some buying on Tuesday and builds on the overnight late rebound from a technically significant 200-day Simple Moving Average (SMA). The pair maintains its bid tone through the early European session and is currently placed near the daily peak, just above the 0.6200 round-figure mark.

A generally positive tone around the equity markets is seen undermining the safe-haven US Dollar and turning out to be a key factor benefitting the risk-sensitive Kiwi. Apart from this, a modest pullback in the US Treasury bond yields further weighs on the Greenback and acts as a tailwind for the NZD/USD pair. That said, looming recession risks should keep a lid on any optimism in the markets. Moreover, any meaningful downside for the USD seems elusive amid the prospects for further policy tightening by the Federal Reserve. This, in turn, warrants some caution before positioning for any further appreciating move for the major.

Traders might also refrain from placing aggressive bullish bets around the NZD/USD pair ahead of Fed Chair Jerome Powell's semi-annual testimony before the Senate Banking Committee, due later during the North American session. A slew of FOMC policymakers recently backed the case for higher rate hikes and opened the door for a 50 bps lift-off at the upcoming policy meeting later this month. Hence, Powell's comments will be scrutinized for fresh clues about the Fed's future rate-hike path, which, in turn, will play a key role in influencing the USD price dynamics and help determine the next leg of a directional move for the major.

Investors this week will also confront the release of the closely-watched US monthly employment details, popularly known as NFP on Friday. Nevertheless, the aforementioned fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has formed a bottom near the 0.6135-0.6130 region, or the YTD low set last week. From a technical perspective, repeated failures to find acceptance below the 200-day SMA could keep bearish traders on the sidelines. This, in turn, suggests that the pair is more likely to oscillate in a narrow trading band heading into the key event/data risks.

Technical levels to watch