NZD/USD remains on the defensive below mid-0.6400s, downside seems cushioned

• NZD/USD seesaws between tepid gains/minor losses through the early European session.
• A hawkish assessment of the Fed’s decision revives the USD demand and caps the upside.
• The disappointing Chinese macro data further contribute to the modest intraday pullback.
• Depressed US bond yields keep a lid on the USD recovery and should help limit the slide.

The NZD/USD pair struggles to capitalize on its modest intraday uptick and attracts some sellers near the 0.6465 region on Thursday. The pair retreats to the lower end of its daily range during the early European session and is currently trading around the 0.6435-0.6430 area.

The US Dollar stages a modest recovery from its lowest level since mid-June amid a hawkish assessment of the Federal Reserve's policy decision on Wednesday and acts as a headwind for the NZD/USD pair. The US central bank delivered a widely anticipated 50 bps rate hike on Wednesday and signalled that it will continue to raise rates to crush inflation. The so-called dot plot projected at least an additional 75 bps increases in borrowing costs by the end of 2023 and the terminal rate rising to 5.1%, up from the 4.6% forecasted in September.

Adding to this, the US central bank expects that it will take longer to get to the 2% inflation goal. Furthermore, Fed Chair Jerome Powell, during the post-meeting press conference, said that more data was needed before the central bank would meaningfully change its view of inflation. This, in turn, offers some support to the buck, which, along with disappointing Chinese macro data, prompts selling around the resources-linked Kiwi. The NZD/USD pair, however, remains well within the overnight range, warranting caution for bearish traders.

Investors seem convinced that the Federal Reserve will soon have to pivot from an ultra-hawkish stance to something more neutral. This, in turn, is keeping the US Treasury bond yields depressed and holding back the USD bulls from placing aggressive bets. Apart from this, a positive risk tone helps limit the downside for the NZD/USD pair, at least for now. Traders now look to the US macro data - Retail Sales, the Philly Fed Manufacturing Index and Weekly Initial Jobless Claims - for some impetus later during the early North American session.

Technical levels to watch