NZD/USD flirts with 0.6200 amid modest USD strength, downside seems cushioned

• NZD/USD drifts lower for the second straight day and retreats further from over a one-month top.
• A modest USD recovery from its lowest level since February 14 exerts some pressure on the pair.
• Sliding US bond yields, bets for a less hawkish Fed, a positive risk tone to cap gains for the buck.

The NZD/USD pair extends the overnight modest pullback from the 0.6280 area, or over a one-month high and continues losing ground for the second successive day on Tuesday. The corrective decline remains uninterrupted through the early European session, with bears now awaiting a sustained weakness below the 0.6200 round-figure mark before placing fresh bets.

The US Dollar (USD) regains some positive traction and snaps a three-day losing streak to its lowest level since February 14, which, in turn, is seen exerting downward pressure on the NZD/USD pair. That said, a fresh leg down in the US Treasury bond yields, amid diminishing odds for a more aggressive policy tightening by the Federal Reserve (Fed), could act as a headwind for the buck. Apart from this, a generally positive risk tone could help limit losses for the risk-sensitive Kiwi, at least for now.

The collapse of two mid-size US banks - Silicon Valley Bank and Signature Bank - fueled speculations that the US central bank will soften its hawkish stance to prevent any further economic pressure from high-interest rates. In fact, the markets are pricing in a greater chance of a smaller 25 bps lift-off in March and that the Fed might even cut rates during the second half of the year. This, in turn, continues to drag the US bond yields lower and should keep a lid on any meaningful upside for the Greenback.

Meanwhile, the news that UBS will rescue Credit Suisse in a $3.24 billion deal helps ease fears of widespread contagion risk and boosts investors' confidence. This is evident from a further recovery in the global equity markets, which tends to undermine traditional safe-haven assets and might further contribute to capping the buck. Market participants, however, remain worried about a full-blown banking crisis. This might hold back traders from positioning for the resumption of the NZD/USD pair's recent recovery from the 0.6085 region, or its lowest level since November 17 touched earlier this month.

Moving ahead, Tuesday's US economic docket features the release of Existing Home Sales data and might provide some impetus later during the early North American session. The focus, however, will remain glued to the outcome of the highly-anticipated two-day FOMC monetary policy meeting, scheduled to be announced on Wednesday. This will play a key role in influencing the near-term USD price dynamics and determine the next leg of a directional move for the NZD/USD pair.

Technical levels to watch