NZD/USD flirts with weekly high, around 0.6765-0.6770 amid modest USD weakness

• NZD/USD attracted some buying on Wednesday and reversed its weekly losses.
• Modest USD pullback from the two-year peak extended some support to the pair.
• Bets for aggressive Fed rate hikes should limit the USD losses and cap the major.

The NZD/USD pair maintained its bid tone through the early European session and was last seen trading near the top end of its weekly range, around the 0.6765-0.6770 region.

Following the previous day's two-way/directionless price move, the NZD/USD pair gained edged higher on Wednesday and moved away from its lowest level since late February touched earlier this week. Modest US dollar profit-taking slide from the two-year peak was seen as a key factor that offered support to spot prices, though any meaningful recovery still seems elusive.

Growing acceptance that the Fed would tighten its monetary policy at a faster pace to curb soaring inflation should continue to act as a tailwind for the buck and cap the upside for the NZD/USD pair. In fact, the markets have been pricing in multiple 50 bps rate hikes by the Fed and the bets were reaffirmed by hawkish remarks by several influential FOMC members.

Chicago Fed President Charles Evans said on Tuesday that he is "comfortable" with a round of rate hikes this year that includes two 50 bps increases. Adding to this, Minneapolis Fed President Neel Kashkari - one of the more dovish FOMC members - noted that policymakers will need to take even more aggressive action to bring down inflation.

This, along with inflation fears, pushed the yield on the benchmark 10-year US government bond to a level not seen since late 2018, which should underpin the greenback. Apart from this, the prevalent cautious market mood could drive some haven flows towards the USD and further collaborate to keep a lid on any further gains for the perceived riskier kiwi.

Market participants now look forward to the US economic docket, featuring the release of Existing Home Sales. This, along with the US bond yields, should influence the USD price dynamics and provide some impetus to the NZD/USD pair. The focus would then shift to the latest consumer inflation figures from New Zealand, due during the Asian session on Thursday.

Technical levels to watch