NZD/USD steadily climbs back above 0.6400 mark, focus remains on US CPI ahead of FOMC

• NZD/USD regains some positive traction on Tuesday amid a modest USD downtick.
• A positive risk tone and softer US bond yields keep the USD bulls on the defensive.
• The upside seems capped ahead of the US CPI on Tuesday and FOMC on Wednesday.

The NZD/USD pair catches fresh bids on Tuesday and steadily climbs back above the 0.6400 mark during the early part of the European session.

A combination of factors attracts some selling around the US Dollar, which, in turn, is seen lending support to the NZD/USD pair. The optimism over the easing of COVID-19 curbs in China remains supportive of the recent recovery in the risk sentiment. Furthermore, the uncertainty over the Fed's rate hike path acts as a headwind for the US Treasury bond yields and keeps the USD bulls on the defensive.

The upside for the NZD/USD pair, meanwhile, is likely to remain limited as traders might refrain from placing aggressive bets ahead of this week's key data/event risks from the US. The crucial US consumer inflation figures for November are due for release later during the North American session. The focus, however, will remain glued to the outcome of a two-day FOMC monetary policy meeting on Wednesday.

Market participants seem convinced that the Fed will slow the pace of its rate-hiking cycle and expect a relatively smaller 50 bps lift-off. That said, the incoming positive US macro data has been fueling speculations that the US central bank may raise rates more than projected. Hence, investors will seek clarity on the Fed's policy outlook, which should influence the near-term USD price dynamics.

Heading into the key data/central bank event risks, the fundamental backdrop warrants caution before positioning for a further appreciating move. Even from a technical perspective, the 0.6420-0.6425 area seems to have emerged as an immediate barrier. This is closely followed by the 0.6440-0.64450 region, or the highest level since mid-August, which should act as a pivotal point for the NZD/USD pair.

Technical levels to watch