NZDUSD rallies to its highest level since late August, above mid-0.6100s amid weaker USD

• NZDUSD gains strong positive traction on Tuesday and rallies to its highest level since August.
• Bets for less aggressive Fed rate hikes, sliding US bond yields continue to weigh on the USD.
• The risk-on impulse also undermines the safe-haven buck and benefits the risk-sensitive Kiwi.

The NZDUSD pair catches aggressive bids on Tuesday and sticks to its strong gains above mid-0.6100s, or its highest level since late August heading into the North American session.

The positive momentum is sponsored by the emergence of fresh selling around the US Dollar, which hits a three-month low amid expectations for a less aggressive policy tightening by the Federal Reserve. Last week's softer US consumer inflation figures fueled speculations that the US central bank will slow the pace of its rate-hiking cycle. In fact, the markets are now pricing in over a 90% chance of a 50 bps rate hike at the next FOMC policy meeting in December.

Apart from this, a generally positive tone around the equity markets is exerting additional downward pressure on the safe-haven buck and further benefitting the risk-sensitive Kiwi. Furthermore, sustained strength above the 0.6100 mark seems to have prompted some technical buying. This could also be cited as another factor contributing to the NZDUSD pair's strong follow-through momentum. That said, a slightly overbought RSI on the daily chart warrants caution for bulls.

Adding to this, fears that China could impose economically-disruptive COVID-19 lockdowns in some cities might prompt bulls to lighten their positions around the NZDUSD pair. Hence, any intraday corrective slide, back towards the 0.6100 mark, looks like a distinct possibility. Next on tap is the US macro data - the Empire State Manufacturing Index and Producer Price Index (PPI). This, along with speeches by Fed officials and the US bond yields, will drive the USD demand.

Technical levels to watch