NZD/USD climbs back closer to mid-0.6100s amid an intraday USD corrective decline

• NZD/USD gains strong positive traction amid a modest USD pullback from a multi-month top.
• Bets for a 50 bps Fed rate hike in March should help limit the USD losses and act as a headwind.
• Looming recession risks could also contribute to capping the upside for the risk-sensitive Kiwi.

The NZD/USD pair attracts some buyers on Thursday and moves away from its lowest level since mid-November, around the 0.6085 region touched the previous day. The momentum lifts spot prices to a two-day high, closer to mid-0.6100s heading into the North American session, and is sponsored by a modest US Dollar weakness.

Signs of stability around the equity markets prompt traders to take some profits and lighten their bullish bets around the safe-haven Greenback, which, in turn, is seen benefitting the risk-sensitive Kiwi. That said, looming recession fears, along with fading hopes over a strong economic recovery in China, should keep a lid on any optimism in the markets. Apart from this, expectations for more aggressive policy tightening by the Federal Reserve should act as a tailwind for the buck and contribute to capping the upside for the NZD/USD pair.

In fact, investors started pricing in a greater chance of a jumbo 50 bps lift-off at the March FOMC meeting after Fed Chair Jerome Powell said that interest rates would have to go higher and possibly faster to tame stubbornly high inflation. This is evident from elevated US Treasury bond yields and favours the USD bulls. The market sentiment, meanwhile, remains fragile amid growing worries about economic headwinds stemming from rapidly rising borrowing costs, which adds credence to the near-term positive outlook for the Greenback.

The aforementioned fundamental backdrop suggests that the path of least resistance for the NZD/USD pair is to the downside. Hence, any subsequent move up might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Next on tap is the release of the usual Weekly Initial Jobless Claims data from the US. This, along with the US bond yields and the broader risk sentiment, should influence the USD price dynamics and provide some impetus to the NZD/USD pair ahead of the crucial NFP report on Friday.

Technical levels to watch