NZD/USD remains confined in a range below 0.6500 mark, downside seems cushioned

• NZD/USD was seen oscillating in a range below 0.6500 through the first half of the European session.
• Recession fears turned out to be a key factor that acted as a headwind for the perceived riskier kiwi.
• A softer tone surrounding the USD extended some support to the pair and helped limit the downside.
• Traders now look forward to the top-tier US macroeconomic releases for some meaningful impetus.

The NZD/USD pair struggled for a firm intraday direction and seesawed between tepid gains/minor losses through the first half of the European session. The pair was last seen trading in neutral territory, around the 0.6480 region.

Despite the Reserve Bank of New Zealand's hawkish signal on Wednesday, the worsening global economic outlook held back traders from placing aggressive bullish bets around the risk-sensitive kiwi. In fact, the markets remain worried that a more aggressive move by major central banks to constrain inflation and the Russia-Ukraine war could pose challenges to the global economy. That said, a softer tone surrounding the US dollar extended some support and helped limit the downside for the NZD/USD pair.

Minutes from the May 3-4 FOMC meeting showed that most participants believed a 50 bps rate hike would likely be appropriate in June and July. This, however, was fully priced in the markets and the lack of any major surprises reaffirmed the idea that the Fed could pause the rate hike cycle later this year. This, in turn, dragged the yield on the benchmark 10-year US government bond to a fresh six-week low. Apart from this, modest recovery in the risk sentiment further undermined the safe-haven greenback.

From a technical perspective, the NZD/USD pair, so far, has struggled to find acceptance above the 0.6500 psychological mark. This warrants some caution before positioning for an extension of the recent bounce from the YTD low. Traders now look forward to the US economic docket - featuring the Prelim Q1 GDP, Weekly Initial Jobless Claims and Pending Home Sales. This, along with the US bond yields and the broader market risk sentiment, will influence the USD and provide some impetus to the NZD/USD pair.

Technical levels to watch