NZD/USD sticks to modest gains just below mid-0.6300s, traders keenly await US CPI

• NZD/USD regains positive traction on Wednesday, albeit lacks follow-through buying.
• The cautious market mood lends some support to the USD and acts as a headwind.
• The downside seems cushioned as traders seem reluctant ahead of the key US CPI.

The NZD/USD pair attracts fresh buying following the previous day's downtick and sticks to a mildly positive tone heading into the European session on Tuesday. The pair is currently placed just below mid-0.6300s and remains well within the striking distance of over a one-month high touched earlier this week.

The US CPI report will play a key role in influencing the market expectations about the Federal Reserve's (Fed) next policy move, which, in turn, should drive the US Dollar (USD) demand and provide a fresh directional impetus to the NZD/USD pair. In the meantime, the cautious market mood is seen lending some support to the safe-haven Greenback amid easing fears of a full-blown banking crisis in the US and acting as a headwind for the risk-sensitive Kiwi.

The downside for the NZD/USD pair, however, remains cushioned, at least for the time being, as the USD bulls seem reluctant in the wake of growing acceptance that the Fed is nearing the end of its year-long rate-hiking cycle. Apart from this, expectations for further rate hikes by the Reserve Bank of New Zealand (RBNZ) should help limit losses for the major. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the upside.

Even from a technical perspective, this week's sustained breakout through a downward sloping trend line, extending from the YTD peak touched in February, favours bullish traders and adds credence to the positive outlook. Hence, a move back towards retesting April monthly swing high, around the 0.6380 region, looks like a distinct possibility. That said, concerns over China could act as a headwind for the NZD/USD pair ahead of the Chinese inflation figures on Thursday.

Technical levels to watch