NZDUSD flits with multi-week high, just below mid-0.5900s amid notable USD supply

• NZDUSD fills the weekly bearish gap opening amid the prevalent USD selling bias.
• Hope for less aggressive Fed rate hikes and the risk-on impulse weighs on the buck.
• Recession risks might keep a lid on any optimism and cap the risk-sensitive Kiwi.

The NZDUSD pair attracts fresh buying in the vicinity of mid-0.5800s on Monday and fills the weekly bearish gap opening heading into the North American session. The pair climbs to the 0.5940 region in the last hour, back closer to the multi-week high touched last Wednesday and remains supported by the prevalent US Dollar selling bias.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, drops to over a one-week low and is pressured by a combination of factors. The mixed results from the closely-watched US monthly jobs report on Friday fueled speculations that the Federal Reserve will slow the pace of its rate-hiking cycle. Apart from this, a positive turnaround in the global risk sentiment exerts additional pressure on the safe-haven buck and benefits the risk-sensitive Kiwi.

That said, growing market worries about the economic headwinds stemming from China's strict zero-COVID policy and the protracted Russia-Ukraine war seem to cap the optimism in the markets. Furthermore, the Fed is still expected to hike interest rates by at least 50 bps at its policy meeting in December. This remains supportive of elevated US Treasury bond yields and should act as a tailwind for the greenback, warranting some caution before placing aggressive bullish bets around the NZDUSD pair.

Traders might also prefer to wait for a fresh catalyst from the latest US consumer inflation figures, due for release on Thursday. Hence, it will be prudent to wait for some follow-through buying beyond the 0.5945-0.5950 resistance zone in order to confirm a near-term bullish breakout and positioning for a further appreciating move. In the absence of any relevant economic data, the US bond yields, along with the broader risk sentiment, will influence the USD and provide some impetus to the NZDUSD pair.

Technical levels to watch