NZD/USD steadily climbs to 0.5975 area, fresh daily peak amid modest USD weakness

• NZD/USD reverses an Asian session dip and turns positive for the second straight day.
• The USD retreats further from a multi-month peak set on Tuesday and lends support.
• Reduced June Fed rate cut bets and a softer risk tone should help limit the USD losses.

The NZD/USD pair attracts some dip-buying during the Asian session on Wednesday and might now be looking to build on the overnight recovery move from levels just below mid-0.5900s, or the YTD low. Spot prices currently trade near the top end of the daily range, around the 0.5970-0.5975 region, and remain at the mercy of the US Dollar (USD) price dynamics.

The USD Index (DXY), which tracks the Greenback against a basket of currencies, drift lower for the second successive day and moves away from its highest level since February 14, which, in turn, is seen acting as a tailwind for the NZD/USD pair. That said, reduced bets for rate cuts by the Federal Reserve (Fed) should help limit any meaningful downside for the Greenback and keep a lid on any further gains for the currency pair. 

Data released this week showed that the US manufacturing sector expanded in March for the first time since September 2022 and that demand for labor remains elevated. Adding to this, comments by a slew of influential FOMC members raised doubts over whether the Fed will cut interest rates three times this year. The current market pricing points to a total of 65 basis points (bps) rate cut for 2024, lower than the central bank's projected 75 bps. 

Meanwhile, the shift in expectations pushed the yield on the benchmark 10-year US government bond to a four-month high. This, along with a generally weaker tone around the equity markets, supports prospects for the emergence of some dip-buying around the safe-haven buck and caps the upside for the risk-sensitive Kiwi. Hence, it will be prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has bottomed out.

Market participants now look forward to the US economic docket – featuring the release of the ADP report on private-sector employment and ISM Services PMI. Apart from this, traders will take cues from speeches by FOMC members, including Fed Chair Jerome Powell. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and contribute to producing short-term trading opportunities around the NZD/USD pair.