NZD/USD sticks to modest recovery gains around 0.6045-50 area, lacks follow-through

• NZD/USD stages a modest recovery from a one-week low touched earlier this Thursday.
• A modest USD downtick lends some support to the pair, though the upside seems capped.
• The fundamental backdrop warrants some caution before placing aggressive bullish bets.

The NZD/USD pair attracts some buying near the 0.6025 area, or a one-week low touched during the Asian session on Thursday and recovers a part of the previous day's losses. The pair is currently placed around mid-0.6000s, up 0.20% for the day, albeit the intraday uptick lacks bullish conviction.

The US Dollar (USD) continues with its struggle to gain any meaningful traction and edges lower within a familiar trading band held over the past two weeks or so, which, in turn, lends some support to the NZD/USD pair. The uncertainty over the Federal Reserve's (Fed) rate-hike path is seen as a key factor holding back the USD bulls from placing aggressive bets. That said, elevated US Treasury bond yields, along with the caution market mood, should help limit the downside for the safe-haven Greenback.

Last week's dovish rhetoric by several Fed officials fueled speculations that the US central bank will keep rates unchanged at the June 13-14 policy meeting. That said, the inflation and labor market data keep alive hopes for a 25 bps lift-off. Moreover, surprise rate hikes by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) this week suggest that the fight against inflation is still not over. This supports prospects for further tightening by the Fed and acts as a tailwind for the US bond yields.

The market sentiment, meanwhile, remains fragile in the wake of the worsening global economic conditions. The concerns resurfaced after Chinese trade data released on Wednesday showed that the surplus sank to a 13-month low in May on the back of a slump in exports. The data indicated weak overseas demand for Chinese goods and poses challenges for the world's largest economy. This could weigh on antipodean currencies, including the Kiwi, and contribute to capping the NZD/USD pair.

This, along with the Reserve Bank of New Zealand's (RBNZ) explicit signal that it was done with its most aggressive hiking cycle since 1999, warrants caution before placing fresh bullish bets. Hence, it will be prudent to wait for strong follow-through buying before positioning for the resumption of the NZD/USD pair's recovery from the YTD low, levels just below the 0.6000 psychological mark touched last week. Market participants now look to the release of the Weekly Initial Jobless Claims data from the US. 

Technical levels to watch