NZD/USD recovers early lost ground to over a two-year low, remains below 0.6100 mark

• NZD/USD stages an intraday recovery from over a two-year low touched earlier this Friday.
• A modest USD pullback from a two-decade high turns out to be a key factor offering support.
• Aggressive Fed rate hike bets to limit the USD losses and cap the pair ahead of the NFP report.

The NZD/USD pair recovers a few pips from its lowest level since May 2020, around mid-0.6000s touched this Friday and climbs back closer to the daily high during the early European session. Spot prices, however, seem to struggle to capitalize on the move and remain below the 0.6100 mark.

The US dollar moves away from a two-decade high touched on Thursday and turns out to be a key factor offering some support to the NZD/USD pair. A softer tone surrounding the US Treasury bond yields keeps the USD bulls on the defensive amid some repositioning trade ahead of the US monthly jobs report later this Friday. Apart from this, signs of stability in the financial markets further seem to undermine the safe-haven buck and benefit the risk-sensitive kiwi.

That said, growing recession fears, economic headwinds stemming from fresh COVID-19 lockdowns in China and the war in Ukraine should cap any optimism. Furthermore, expectations that the Fed will stick to its aggressive policy tightening path should act as a tailwind for the US bond yields and lend support to the greenback. This makes it prudent to wait for strong follow-through buying before positioning for any meaningful near-term recovery for the NZD/USD pair.

Investors might also prefer to move on the sidelines and await the closely-watched US NFP report, due for release later during the early North American session. The data will provide a fresh insight into the labour market conditions and the overall health of the economy, which should influence Fed rate hike expectations. This, in turn, will play a key role in driving the USD demand and help investors to determine the next leg of a directional move for the NZD/USD pair.

Technical levels to watch