NZD/USD bulls await sustained move beyond 0.6400 mark amid risk-on impulse

• NZD/USD edged higher for the second straight session and inched back closer to a two-week high.
• A positive risk tone benefitted the perceived riskier kiwi and remained supportive of the uptick.
• Modest USD strength, recession fears held back bulls from placing fresh bets and capped gains.

The NZD/USD pair maintained its bid tone through the early European session and was last seen trading near the daily high, around the 0.6400 round-figure mark.

The pair gained traction for the second successive day on Friday - also marking the fifth day of a positive move in the previous six - and inched back closer to a two-week high touched overnight. The People’s Bank of China (PBOC) cut its five-year loan prime rate by 15 basis points to counter an economic slowdown and boosted investors' confidence. This was evident from a solid recovery in the equity markets, which, in turn, was seen as a key factor that benefitted the perceived riskier kiwi.

That said, recession fears might keep a lid on any optimistic moves in the markets. Investors seem worried that a more aggressive move by major central banks to constrain inflation, the Russia-Ukraine war and extended COVID-19 lockdowns in China would hurt the global economic growth. Apart from this, modest US dollar strength failed to assist the NZD/USD pair to capitalize on the intraday uptick beyond the 0.6400 mark. This warrants caution for aggressive traders and before placing fresh bullish bets.

The markets seem convinced that the Fed would need to take more drastic action to bring inflation under control. The bets were reinforced by Fed Chair Jerome Powell's remarks at a Wall Street Journal event, saying that he will back interest rate increases until prices start falling back toward a healthy level. This, along with an uptick in the US Treasury bond yields, extended some support to the greenback, which, in turn, should cap the NZD/USD pair amid absent relevant economic data from the US.

Technical levels to watch