NZD/USD surrenders intraday gains amid softer risk tone, modest USD bounce ahead of US PMIs

• NZD/USD attracts some intraday sellers amid a modest bounce from a multi-month low.
• Recession fears take a toll on the risk sentiment and benefit the safe-haven greenback.
• Bets for smaller Fed rate hikes drag the US bond yields lower and cap gains for the USD.
• Traders eye US PMIs for some impetus ahead of NZ quarterly CPI report on Wednesday.

The NZD/USD pair continues with its struggle to find acceptance above the 0.6500 psychological mark and retreats over 50 pips from a multi-day high touched earlier this Tuesday. Spot prices return to the lower end of the daily range, around the 0.6480-0.6475 region, heading into the North American session, though any meaningful decline seems elusive.

Worries about a deeper global economic downturn keep a lid on any optimism in the markets, which is evident from a fresh leg down in the equity markets. This, in turn, assists the safe-haven US Dollar to stage a modest recovery from a nine-month low and drives some flows away from the risk-sensitive Kiwi. That said, the prospects for a less aggressive policy tightening by the Fed might cap the upside for the greenback and lend support to the NZD/USD pair.

Investors seem convinced that the US central bank will soften its hawkish stance amid signs of easing inflationary pressures. In fact, the markets have been pricing in a smaller 25 bps rate hike move at the end of the upcoming policy meeting next week. This, in turn, exerts some downward pressure on the US Treasury bond yields and might continue to weigh on the buck. Traders also seem reluctant to place aggressive bets ahead of this week's important macroeconomic data.

The quarterly consumer inflation report from New Zealand is scheduled for release during the early Asian session on Wednesday. This will be followed by the Advance Q4 GDP print and the Core PCE Price Index from the US on Thursday and Friday, respectively. The key focus, however, will remain on the highly-anticipated FOMC monetary policy decision. This will play a key role in driving the USD in the near term and help determine the near-term trajectory for the NZD/USD pair.

In the meantime, traders on Tuesday will take cues from the US economic docket, featuring the flash PMI prints and the Richmond Manufacturing Index. Apart from this, the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide some meaningful impetus to the NZD/USD pair. Nevertheless, the fundamental backdrop still seems tilted in favour of bullish traders, suggesting that any meaningful pullback might be seen as a buying opportunity.

Technical levels to watch