NZD/USD struggles to capitalize on intraday recovery from YTD low, remains below 0.6000

• NZD/USD rebounds from its lowest level since November 2022 touched earlier this Monday.
• A positive tone around the European equity markets lends support to the risk-sensitive Kiwi.
• Bets for one more rate hike by the Fed should underpin the USD and cap any further gains.
• Traders now look to Chinese macro releases on Tuesday ahead of the RBNZ on Wednesday.

The NZD/USD pair stages a goodish intraday recovery from the vicinity of mid-0.5900s, or its lowest level since November 2022 touched this Monday and hits a fresh daily peak during the early European session. Spot prices currently trade just below the 0.600 psychological mark, up nearly 0.10% for the day, and for now, seem to have snapped a four-day-losing streak, though any meaningful appreciating move still seems elusive.

In the absence of any fresh fundamental catalyst, a positive opening across the European equity markets prompts some profit-taking around the safe-haven US Dollar (USD) and turns out to be a key factor that benefits the risk-sensitive Kiwi. That said, growing worries about the worsening economic conditions in China and geopolitical risks might keep a lid on any optimism. Furthermore, expectations that the Federal Reserve (Fed) will keep interest rates higher for longer should help limit the USD corrective slide from its highest level since July 7 and cap gains for the NZD/USD pair.

Investors seem convinced that the US central bank will stick to its hawkish stance and the bets were reaffirmed by the US PPI on Friday, which rose slightly more than expected in July. This comes on the back of a moderate rise in consumer prices in July and suggests that the battle to bring inflation back to the Fed's 2% target is far from being won, leaving the door for one more 25 bps lift-off by the end of this year wide open. The outlook remains supportive of elevated US Treasury bond yields and favours the USD bulls, warranting caution before positioning for further NZD/USD upside.

Traders might also refrain from placing aggressive bets and prefer to wait on the sidelines ahead of important Chinese macro data, due for release during the Asian session on Tuesday. The focus will then shift to the Reserve Bank of New Zealand (RBNZ) monetary policy meeting on Wednesday, which will play a key role in influencing the domestic currency and provide a fresh impetus to the NZD/USD pair. In the meantime, the aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the downside and the attempted recovery might get sold into.

Technical levels to watch