NZD/USD holds steady above 0.6200 mark amid weaker USD, lacks bullish conviction

• NZD/USD regains some positive traction on Friday amid a modest USD weakness.
• The upbeat Chinese data undermines the safe-haven buck and lends some support.
• Recession fears, hawkish Fed expectations to limit the USD losses and cap the pair.

The NZD/USD pair attracts some buyers near the 0.6200 round-figure mark on Friday and recovers a part of the previous day's retracement slide from a two-week high. The pair maintains its bid tone through the early European session and currently trades near the top end of its daily range, around the 0.6225-0.6230 region, though lacks bullish conviction.

A private survey showed that activity in China's services sector expanded at the fastest pace in six months in February and turns out to be a key factor lending some support to antipodean currencies, including the Kiwi. This, along with a modest US Dollar weakness, lends some support to the NZD/USD pair. That said, the prospects for further policy tightening by the Federal Reserve should limit the downside for the Greenback and keep a lid on any meaningful upside for the major, warranting some caution for aggressive bullish traders.

The markets seem convinced that the US central bank will stick to its hawkish stance for longer in the wake of stubbornly high inflation - as depicted by the US CPI, PPI and the PCE Price Index released recently. Moreover, the incoming positive US macro data, including the Initial Jobless Claims on Thursday, pointed to an economy that remains resilient and should allow the Fed to continue lifting interest rates. Adding to this, a slew of FOMC members this week opened the door for a jumbo 50 bps lift-off at the next policy meeting later this month.

This, in turn, remains supportive of elevated US bond yields. In fact, the yield on the benchmark 10-year US government bond rose to its highest level since last November and the rate-sensitive two-year Treasury note shot to levels last seen in July 2007 on Thursday. Furthermore, growing market worries about economic headwinds stemming from rapidly rising borrowing costs favour the USD bulls. Hence, it will be prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has bottomed out in the near term.

Market participants now look forward to the US economic docket, featuring the release of the ISM Services PMI later during the early North American session. Apart from this,  a scheduled speech by Dallas Fed President Lorie Logan and the US bond yields will influence the USD price dynamics. Traders will further take cues from the broader risk sentiment to grab short-term opportunities around the NZD/USD pair heading into the weekend.

Technical levels to watch