NZD/USD climbs back closer to mid-0.6300s amid the emergence of fresh USD selling

• NZD/USD attracts some dip-buying near 0.6300 on Friday amid a modest USD pullback.
• A modest recovery in the equity markets further offers support to the risk-sensitive Kiwi.
• Hawkish Fed expectations, recession risks could limit the USD losses and cap the major.

The NZD/USD pair reverses an intraday dip to the 0.6300 neighbourhood and climbs to a fresh daily high during the early European session on Friday. The pair is currently placed around the 0.6340 region, up over 0.30% for the day, though remains well below the weekly top touched the previous day.

The US Dollar struggles to capitalize on its modest intraday gains and retreats from a one-month high, which, in turn, assists the NZD/USD pair to attract some dip-buying on the last day of the week. The USD pullback could be attributed to a sudden pickup in demand for the Japanese Yen, led by reports that the Japanese government plans to appoint Kazuo Ueda as the next Bank of Japan governor. Apart from this, a modest bounce in the US equity futures further undermines the safe-haven buck and benefits the risk-sensitive Kiwi.

That said, looming recession risks could keep a lid on any optimism in the markets. The market concerns about a deeper global economic downturn are reinforced by the deeply inverted US Treasury yield curve. Apart from this, the prospects for further policy tightening by the Fed should help limit losses for the Greenback and cap gains for the NZD/USD pair, at least for the time being. It is worth mentioning that several FOMC members, including Fed Chair Jerome Powell, stressed the need for additional rate hikes to tame inflation.

The aforementioned fundamental backdrop warrants some caution before confirming that the NZD/USD pair's recent slide from its highest level since June 2022 has run its course. Traders now look to the Preliminary Michigan Consumer Sentiment Index from the US, due later during the early North American session. This, along with Fed Governor Christopher Waller's speech, might influence the USD. Apart from this, the broader risk sentiment could further contribute to producing short-term trading opportunities around the major.

Technical levels to watch