NZD/USD stays defensive above 0.6200 amid firmer US Dollar, mixed sentiment ahead of NZ Budget

• NZD/USD retreats from intraday high but prints mid gains as risk dwindles.
• Doubts about US policymakers’ optimism for debt ceiling extension, hawkish Fed talks and upbeat data weigh on Kiwi pair.
• Positive expectations from New Zealand budget allow NZD/USD to grind higher amid light calendar.

NZD/USD struggles to defend intraday gains around 0.6240, recently easing from daily tops, as the US Dollar benefits from mixed market sentiment during early Wednesday morning in Europe. Also challenging the Kiwi pair buyers is the anxiety ahead of New Zealand’s (NZ) annual budget announcements, scheduled for Thursday.

US Dollar Index (DXY) grinds near intraday top, making rounds to 102.70, after refreshing the six-week high as the greenback traders struggle for clear directions amid looming US default and hawkish Fed signals, not to forget strong US data.

US congressional leaders cited possibilities of a deal to avoid the debt default by next week after US President Joe Biden and House Speaker Kevin McCarthy wrapped up debt limit negotiations within an hour. However, a lack of details and mixed outlook of Democrats seem to prod the optimism of late.

Elsewhere, strong prints of the US Retail Sales and Industrial Production details allowed the Federal Reserve (Fed) officials to remain hawkish. Recent ones among them were Federal Reserve Bank of Chicago President Austan Goolsbee and Atlanta Fed President Raphael Bostic who cited inflation and employment pressures to defend the hawkish bias.

On the other hand, hopes of an upbeat NZ budget and likely more investment from China, per the early statements from New Zealand Finance Minister (FinMin) Grant Robertson and China’s State Planner National Development and Reform Commission of the People's Republic of China (NDRC), allow the NZD/USD pair to remain firmer.

NZ FinMin Robertson previously stated that the government budget would have a focus on fiscal sustainability as the government does its bit to keep inflation under control, reported Reuters. That said, China’s NDRC recently mentioned that it'll take measures to unleash consumption potential and to make continuous efforts in stabilizing and expanding manufacturing investment.

While portraying the mood, S&P500 Futures remain mildly bid near 4,132 and the key US Treasury bond yields retreat from the two-week high marked the previous day. However, the US Dollar Index (DXY) bounces off its intraday low to 102.65 whereas the Asia-Pacific shares grind lower of late.

Looking ahead, the US housing numbers may entertain the NZD/USD pair traders ahead of Thursday’s New Zealand Producer Price Index (PPI) and annual budget. “Local participants are starting to size up the Budget, with the bond markets nervous about bond supply and FX markets worried about how credit rating agencies will perceive the Budget, hoping for a tick, but fearing the opposite,” said ANZ ahead of the NZ budget.

Technical analysis

NZD/USD rebound remains elusive unless providing a daily close beyond the 200-day Exponential Moving Average (EMA), around 0.6250 by the press time.