NZD/USD climbs to one-week high, around 0.6180 amid subdued USD price action

• NZD/USD scales higher for the third straight day and climbs to a one-week high on Tuesday.
• The uncertainty over the Fed’s rate-hike path undermines the USD and lends some support.
• The divergent Fed-RBNZ policy outlook to cap gains ahead of FOMC minutes on Wednesday.

The NZD/USD pair gains positive traction for the third successive day on Tuesday and climbs to a one-week high during the early part of the European session. Spot prices currently trade around the 0.6170, up 0.30% for the day, and might look to build on the recent bounce from the 0.6050 area, or a three-week low touched last Thursday.

The US Dollar (USD) struggles to gain any meaningful traction in the wake of the uncertainty over the Federal Reserve's (Fed) rate-hike path and turns out to be a key factor acting as a tailwind for the NZD/USD pair. It is worth recalling that the US central bank had indicated in June that borrowing costs may still need to rise as much as 50 bps by the end of this year and the outlook was reinforced by Fed Chair Jerome Powell last week. That said, the softer US PCE Price Index released on Friday, along with Monday's weaker US ISM PMI, raises questions over how much headroom the Fed has to continue tightening its monetary policy and keep the USD bulls on the defensive.

The markets, however, are still pricing in a greater chance of a 25 bps lift-off at the next FOMC policy meeting on July 25-26. This, in turn, remains supportive of elevated US Treasury bond yields, which, along with worries about a global economic downturn, lends some support to the safe-haven Greenback and could cap gains for the risk-sensitive Kiwi. Apart from this, the Reserve Bank of New Zealand's (RBNZ) explicit signal that it was done with its most aggressive hiking cycle since 1999 might further contribute to keeping a lid on the NZD/USD pair and warrants some caution before positioning for any meaningful appreciating move in the near term.

Traders might also prefer to wait on the sidelines ahead of this week's releases of the June FOMC meeting minutes, due on Wednesday, which will be scrutinized for cues about the Fed's policy outlook. Apart from this, the closely-watched US monthly employment details - popularly known as the NFP - will influence the USD and determine the near-term trajectory for the NZD/USD pair. In the meantime, relatively thin trading volumes, on the back of the Independence Day holiday in the US might hold back bulls from placing gresh bets.

Technical levels to watch