NZD/USD trims a part of RBNZ-inspired gains, still well bid around mid-0.6300s

• NZD/USD jumps to over a two-month high in reaction to the RBNZ’s surprise 50 bps rate hike.
• Rebounding US bond yields lends some support to the USD and acts as a headwind for the pair.
• The fundamental backdrop favours bullish traders and supports prospects for additional gains.

The NZD/USD pair builds on this week's bullish breakout through a technically significant 200-day Simple Moving Averages (SMA) and climbs to its highest level since February 14 on Wednesday. Spot prices, however, trim a part of the strong intraday gains and trade around mid-0.6300s during the early European session, still up over 0.50% for the day.

As investors digest the Reserve Bank of New Zealand's (RBNZ) surprise 50 bps rate hike, a modest US Dollar rebound from over a two-month low turns out to be a key factor acting as a headwind for the NZD/USD pair. The US Treasury bond yields edge higher following the overnight steep decline, which, along with the cautious market mood, lends some support to the safe-haven buck. That said, growing acceptance that the Federal Reserve (Fed) is nearly done with its tightening cycle could keep a lid on any meaningful gains for the Greenback.

In fact, the current market pricing indicates an even chance of a 25 bps lift-off at the May FOMC meeting and the possibility of rate cuts by end-December. The bets were reaffirmed by the weaker US macro data on Tuesday, which showed that job openings in February dropped to the lowest in nearly two years. This was seen as a sign that the Fed's efforts to slow the labor market may be having some impact. This, in turn, should cap the US bond yields and the USD, which, along with the RBNZ's hawkish outlook, should continue to boost the NZD/USD pair.

In the accompanying monetary policy statement, the RBNZ stressed that inflation is still too high and remains persistent, adding that the official cash rate needs to be at a level to reduce prices. This suggests that the path of least resistance for the NZD/USD pair is to the upside and supports prospects for an extension of a three-day-old positive trend. Traders now look to the US economic docket, featuring the release of the ADP on private-sector employment and the ISM Services PMI, for a fresh impetus later during the early North American session.

Technical levels to watch