NZD/USD retakes 0.6400 amid weaker USD, eyes multi-month top touched earlier this week

• NZD/USD gains traction for the fourth straight day on Friday amid the prevalent USD selling bias.
• Bets for less aggressive Fed rate hikes keep the US bond yields depressed and weigh on the buck.
• A positive risk tone further undermines the safe-haven buck and benefits the risk-sensitive Kiwi.

The NZD/USD pair edges higher for the fourth successive day on Friday and climbs back closer to the top end of its weekly trading range. The pair sticks to its modest gains through the early European session and is currently placed around the 0.6400 round-figure mark.

A combination of factors drags the US Dollar closer to a multi-month low set earlier this week, which, in turn, is seen acting as a tailwind for the NZD/USD pair. Rising bets for a less aggressive policy tightening by the Fed, along with a generally positive risk tone, continue to weigh on the safe-haven greenback.

The markets seem convinced that the US central bank will slow the pace of its rate-hiking cycle and have been pricing in a relatively smaller 50 bps lift-off in December. Furthermore, the optimism over the easing of strict COVID-19 restrictions in China remains supportive of a recovery in the global risk sentiment.

That said, the incoming positive US economic data fuels speculations that the US central bank might lift rates more than projected, which should limit losses for the USD. Moreover, worries about a deeper global economic downturn might further contribute to capping the upside for the growth-sensitive New Zealand Dollar.

Traders might also refrain from placing fresh bets ahead of next week's key data/event risks - the US consumer inflation figures and the FOMC meeting. The crucial US CPI report will influence the Fed's policy outlook, which, in turn, will drive the USD and provide a fresh directional impetus to the NZD/USD pair.

Hence, it remains to be seen if bulls are able to retain control or if the intraday move-up runs out of steam at higher levels. Nevertheless, the NZD/USD pair has reversed modest weekly losses and remains well within the striking distance of its highest level since mid-August, around the 0.6440-0.6445 area touched on Monday.

Market participants now look to the US economic docket, featuring the release of the Producer Price Index (PPI) and the Prelim Michigan Consumer Sentiment Index. This, along with the risk sentiment, could provide some impetus and allow traders to grab short-term opportunities around the NZD/USD pair on the last day of the week.

Technical levels to watch