NZDUSD steadily climbs back above mid-0.6100s amid recovery in risk sentiment, softer USD

• NZDUSD regains positive traction amid the emergence of fresh selling around the USD.
• A recovery in the equity markets weighs on the buck and benefits the risk-sensitive Kiwi.
• Geopolitical risks and China’s COVID-19 woes might cap any further gains for the major.

The NZDUSD pair attracts fresh buying near the 0.6115 area on Wednesday and steadily climbs to a fresh daily high during the early European session. The pair is currently trading just above the mid-0.6100s, though remains well below its highest level since August 26 touched the previous day.

The US Dollar struggles to capitalize on the overnight late rebound from a three-month low and comes under renewed selling pressure, which, in turn, offers some support to the NZDUSD pair. The initial findings, as reported by Associated Press (AP) citing unidentified US officials, suggest that the missile that hit Poland on Tuesday may have been fired by Ukraine at an incoming Russian missile. The headlines infuse some stability in the financial markets, which, in turn, undermines the safe-haven buck and benefits the risk-sensitive Kiwi.

Apart from this, firming expectations for a less aggressive policy tightening by the Federal Reserve is seen as another factor weighing on the buck. In fact, the markets are now pricing in over a 90% chance of a 50 bps rate hike at the next FOMC policy meeting in December. The bets were reaffirmed by the softer-than-expected US Producer Price Index on Tuesday, which, along with a surprise drop in the US consumer inflation figures last week, point to easing price pressures. That said, a modest uptick in the US Treasury bond yields could limit the USD losses.

Furthermore, recession fears - amid worries about headwinds stemming from the protracted Russia-Ukraine war and economically-disruptive COVID-19 lockdowns in China, might cap the optimism. This, in turn, warrants some caution before placing aggressive bullish bets around the NZDUSD pair and positioning for any further gains. Traders now look forward to the US monthly Retail Sales data for a fresh impetus later during the early North American session. Adding to this, geopolitical developments might produce short-term trading opportunities around the NZDUSD pair.

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