NZD/USD sticks to modest intraday gains, remains below 200 DMA hurdle near mid-0.6200s

• NZD/USD regains some positive traction on Wednesday, albeit lacks follow-through.
• A combination of factors lifts the USD to a fresh multi-week high and caps the pair.
• The fundamental backdrop warrants some caution before placing fresh bullish bets.

The NZD/USD pair attracts fresh buying on Tuesday and sticks to its modest intraday gains, just below mid-0.6200s through the early European session. Spot prices, however, remain below a technically significant 200-day Simple Moving Average (SMA).

The positive move, meanwhile, lacks any obvious fundamental catalyst and runs the risk of fizzling out rather quickly amid some follow-through US Dollar (USD) buying. In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs to a fresh high since April and draws support from a combination of factors. This, in turn, warrants some caution before placing fresh bullish bets around the NZD/USD pair and positioning for any further appreciating move.

Cleveland Federal Reserve (Fed) President Loretta Mester said that interest rates are not at a sufficiently restrictive level and that the central bank isn't at the spot to hold rates yet. This, in turn, reaffirmed market expectations that the US central bank will keep interest rates higher for longer. Furthermore, looming recession risks, along with concerns about the US debt ceiling, continue to weigh on investors' sentiment, which further benefits the safe-haven buck and contributes to capping the risk-sensitive Kiwi.

Apart from this, diminishing odds for further rate hikes by the Reserve Bank of New Zealand (RBNZ), bolstered by a slide in inflation expectations for the first quarter, suggests that the path of least resistance for the NZD/USD pair is to the downside. Hence, any subsequent move-up is more likely to attract fresh sellers and remain capped. Traders now look to the US housing market data - Building Permits and Building Permits - for a fresh impetus later during the early North American session.

The market attention will then shift to the New Zealand government's Annual Budget, due for release during the Asian session on Thursday, which might influence the New Zealand Dollar (NZD). The focus, however, will remain glued to Fed Chair Jerome Powell's appearance on Friday. Powell's comments will play a key role in driving the near-term USD demand and help investors to determine the next leg of a directional move for the NZD/USD pair.

Technical levels to watch