NZD/USD edges higher amid softer USD, remains below 0.6400 as traders await US CPI

• NZD/USD edges higher on Thursday amid renewed USD selling bias, albeit lacks follow-through.
• Bets for less aggressive Fed rate hikes keep the US bond yields depressed and weigh on the USD.
• A positive risk tone further undermines the safe-haven buck and benefits the risk-sensitive Kiwi.
• Traders, however, seem reluctant to place aggressive bets ahead of the US CPI print on Thursday.

The NZD/USD pair reverses an intraday dip to the 0.6340 area and trades with a mildly positive tone during the early European session. The pair is currently placed around the 0.6370-0.6375 region and remains well within the striking distance of a nearly three-week high touched on Monday.

The intraday uptick is sponsored by the emergence of fresh selling around the US Dollar, weighed down by firming expectations that the Fed will soften its hawkish stance. The bets were reaffirmed by last week's data, which showed that the US wage growth in December and pointed to signs of easing inflationary pressures.

Furthermore, business activity in the US services sector contracted and hit the worst level since 2009 in December. This, in turn, fuels speculations for a less aggressive policy tightening by the Fed, which keeps the US Treasury bond yields depressed near a multi-week low and is seen as a key factor undermining the buck.

Apart from this, a generally positive tone around the equity markets dents the greenback's relative safe-haven status and benefits the risk-sensitive Kiwi. The NZD/USD pair, however, lacks bullish conviction as traders seem reluctant to place aggressive bets ahead of the US consumer inflation data, due for release on Thursday.

The crucial US CPI report should provide further clarity on whether the Fed will have to increase its target rate beyond 5% to curb stubbornly high inflation. This, in turn, will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the NZD/USD pair.

In the meantime, the US bond yields could drive the USD demand and provide some impetus to the NZD/USD pair in the absence of any relevant market-moving economic releases from the US. Apart from this, traders will take cues from the broader market risk sentiment to grab short-term opportunities around the major.

Technical levels to watch