NZD/USD sticks to modest gains above 0.6200 amid subdued USD demand ahead of FOMC

• NZD/USD regains some positive traction on Wednesday and snaps a two-day losing streak.
• Bets for a less hawkish Fed continue to weigh on the USD and act as a tailwind for the pair.
• The upside remains limited as investors await the highly-anticipated FOMC policy decision.

The NZD/USD pair attracts some buyers near the 0.6170 area on Wednesday and for now, seems to have stalled a two-day-old corrective slide from over a one-month high touched earlier this week. The pair sticks to its modest intraday gains through the early European session and is currently placed around the 0.6215 region, up

The US Dollar (USD) struggles to gain any meaningful traction and languishes near its lowest level since February 14 amid the prospects for a less aggressive policy tightening by the Federal Reserve (Fed). Apart from this, a stable performance around the equity markets further seems to undermine the safe-haven Greenback and turns out to be a key factor lending some support to the NZD/USD pair.

In fact, the markets now seem convinced that the US central bank will soften its hawkish stance and deliver a smaller 25 bps rate hike at the end of a two-day policy meeting later this Wednesday. Furthermore, the recent collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - fueled speculations that the Fed might even start cutting interest rates during the second half of the year.

Hence, investors will closely scrutinize the accompanying monetary policy statement, the updated economic projections and Fed Chair Jerome Powell's comments at the post-meeting press conference for clues about the future rate-hike plan. This will play a key role in influencing the near-term USD price dynamics and help in determining the next leg of a directional move for the NZD/USD pair.

Heading into the key central bank event risk, easing fears of a full-blown global banking crisis remains supportive of a generally positive risk tone and might continue to lend some support to the risk-sensitive Kiwi. That said, any meaningful upside still seems elusive as traders are likely to move to the sidelines and wait for a fresh catalyst before placing aggressive bets around the NZD/USD pair.

Technical levels to watch