NZD/USD sticks to modest intraday gains, just below 0.6400 amid softer USD

• NZD/USD draws support from a combination of factors and edges higher for the second straight day.
• A positive risk tone is seen undermining the safe-haven buck and benefitting the risk-sensitive Kiwi.
• The Fed’s hawkish outlook should limit the USD losses and cap any meaningful upside for the major.

The NZD/USD pair gains traction for the second successive day and maintains its bid tone through the first half of the European session. The pair is currently placed just below the 0.6400 mark and looks to build on Friday's modest rebound from over a one-week low amid some renewed US Dollar selling.

A modest recovery in the risk sentiment - as depicted by a positive tone around the equity markets - is seen undermining the safe-haven USD and acting as a tailwind for the risk-sensitive Kiwi. That said, a combination of factors should help limit the downside for the greenback and keep a lid on any further gains for the NZD/USD pair, at least for the time being.

Despite the easing of strict COVID-19 restrictions in China, a sharp rise in new infections could delay the full reopening of the economy. This, along with the protracted Russia-Ukrain war, might keep a lid on any optimism in the markets. Furthermore, a more hawkish commentary by the Fed last week supports prospects for the emergence of some USD dip-buying.

It is worth recalling that the US central bank stated that it will continue to raise rates to crush inflation and projected at least an additional 75 bps increase in borrowing costs by the end of 2023. This remains supportive of an uptick in the US Treasury bond yields and favours the USD bulls, warranting caution before placing bullish bets around the NZD/USD pair.

In the absence of any major market-moving economic releases from the US, the US bond yields will play a key role in influencing the USD price dynamics. Apart from this, the broader risk sentiment could drive demand for the safe-haven greenback and contribute to producing short-term trading opportunities around the NZD/USD pair.

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