NZD/USD sticks to gains near multi-week high, just below 0.5900 ahead of US ISM PMI

• A combination of factors lifts NZD/USD to a six-week high on Tuesday.
• Bets for a less hawkish Fed and sliding US bond yields weigh on the USD.
• A positive risk tone provides an additional lift to the risk-sensitive kiwi.

The NZD/USD pair builds on the previous day's bounce from the 0.5775 region and gains strong follow-through traction for the second successive day on Tuesday. This also marks the fifth day of a positive move in the previous six and lifts spot prices to the 0.5900 neighbourhood, or the highest level since September 21.

The US dollar stalls its recent bounce from over a one-week low touched last week and snaps a three-day winning streak, which, in turn, provides a goodish lift to the NZD/USD pair. Speculations that the Fed will soften its hawkish stance amid signs of a slowdown in the US economy led to a further decline in the US Treasury bond yields. This, along with a generally positive tone around the equity markets, is seen undermining the safe-haven buck and benefitting the risk-sensitive kiwi.

The better-than-expected Chinese Caixin Manufacturing PMI, which improved to 49.2 in October from 48.1 previous, boosted investors' confidence and led to a goodish recovery in the global risk sentiment. Investors, however, remain concerned about the economic headwinds stemming from China's strict zero-COVID policy amid the resurgence of new cases in Shanghai and Wuhan. Apart from this, the protracted Russia-Ukraine war should keep a lid on any further optimistic moves in the markets.

Furthermore, firming expectations that the Fed will hike interest rates by 75 bps at the end of a two-day policy meeting on Wednesday should act as a tailwind for the US bond yields and the greenback. This, in turn, warrants some caution for aggressive bullish traders and positioning for any further appreciating move for the NZD/USD pair. Traders now look to the release of the US ISM Manufacturing PMI for some impetus later during the early North American session.

Technical levels to watch