NZD/USD climbs to 0.6725 amid risk-on/weaker USD, bulls eyeing monthly high

• NZD/USD caught fresh bids on Monday and inched back closer to the monthly swing high.
• The risk-on impulse weighed on the safe-haven USD and benefitted the perceived riskier kiwi.
• Absent relevant economic releases warrant some caution before placing aggressive bullish bets.

The NZD/USD pair built on its steady intraday ascent through the early European session and climbed to a fresh daily high, around the 0.6725 region in the last hour.

The pair attracted fresh buying near the 0.6680 region on Monday and inched back closer to the monthly high, retested on the last day of the previous week amid modest US dollar weakness. The risk-on impulse turned out to be a key factor that undermined the safe-haven greenback and benefitted the perceived riskier kiwi.

The office of French President Emmanuel Macron announced on Monday that US President Joe Biden and his Russian counterpart Vladimir Putin have agreed in principle to hold a summit on the Ukraine crisis. This revived hopes for a diplomatic solution to the East-West stand-off and lifted the global risk sentiment.

The buck was further pressured by uncertainty about the Fed's tightening plans. The minutes of the January 25-26 FOMC meeting did little to reinforce expectations for a 50 bps rate hike in March. Moreover, the geopolitical developments could force the Fed to adopt a less aggressive policy stance to combat high inflation.

Hence, the market focus will remain on the upcoming meeting between the US Secretary of State Antony Blinken and Russian Foreign Minister Sergei Lavrov planned for February 24. The fundamental backdrop seems tilted in favour of bulls, though absent relevant economic releases might hold back traders from placing aggressive bets.

Technical levels to watch