NZD/USD struggles to capitalize on recovery move beyond 0.6200 amid stronger USD, risk-off

• NZD/USD stages a goodish recovery from a one-month low touched last Friday.
• The PBoC moves to ease policy further and boosts antipodeans, including kiwi.
• Sustained USD buying, recession fears cap any meaningful upside for the pair.

The NZD/USD pair gains some positive traction on Monday and snaps a five-day losing streak to a one-month low, around the 0.6165 region touched last week. The pair maintains its bid tone through the mid-European session and is currently placed around the 0.6200 mark, though seems to struggle to capitalize on the move.

The People’s Bank of China (PBoC) cut lending rates for the second time in two weeks to stimulate the economy, which, turns out to be a key factor that benefits antipodeans, including the kiwi. Apart from this, the attempted recovery lacks any obvious fundamental catalyst and remains capped amid sustained US dollar buying.

Firming expectations that the Fed will stick to its policy tightening path to tame inflation remains supportive of elevated US Treasury bond yields. In fact, the benchmark 10-year US government bond is holding just below the 3.0% threshold, which, along with the prevalent risk-off mood, continues to underpin the USD.

The market sentiment remains fragile amid growing worries about a global economic slowdown. Apart from this, unease over the Chinese economic headwinds from COVID lockdowns triggers a fresh bout of the risk-aversion trade. This is seen as another factor benefitting the safe-haven buck and capping gains for the risk-sensitive kiwi.

The fundamental backdrop makes it prudent to wait for strong follow-through buying before confirming that the NZD/USD pair has formed a near-term bottom and positioning for any further gains. In the absence of any market-moving US economic data, the broader risk sentiment might influence the USD and provide some impetus to the major.

Technical levels to watch