NZD/USD struggles to gain any meaningful traction, flat-lines around 0.6265-70 area

• NZD/USD attracts some dip-buying on Monday, albeit lacks follow-through.
• An intraday pickup in the USD demand acts as a headwind for the major.
• The downside seems limited as traders keenly await the RBNZ on Tuesday.

The NZD/USD pair struggles to capitalize on the move on Monday and attracts fresh sellers in the vicinity of the 0.6300 round-figure mark. Spot prices drop back closer to the lower end of the daily range and trade around the 0.6265-0.6270 region during the early European session.

The US Dollar (USD) attracts some dip-buying on the first day of a new week and stalls its retracement slide from a two-month high touched on Friday, which, in turn, is seen as a key factor acting as a headwind for the NZD/USD pair. Worries over slowing global growth, to a larger extent, overshadow the optimism over a potential improvement in US-China relations and drive some haven flows towards the Greenback. That said, any meaningful USD upside seems capped in the wake of a surprise breakdown in the US debt ceiling negotiations and less hawkish remarks by Federal Reserve (Fed) Chair Jerome Powell.

It is worth recalling that talks over the potential to raise the government's $31.4 trillion debt ceiling to avoid an unprecedented American debt default suddenly broke down at the end of the last week. Furthermore, Powell said on Friday it is still unclear if interest rates will need to rise further amid uncertainty about the impact of past hikes and recent bank credit tightening. Powell reiterated that the central bank would now make decisions meeting by meeting and added that officials can afford to look at the data and the evolving outlook to make a careful assessment after a year of aggressive rate increases.

The aforementioned factors trigger a fresh leg down in the US Treasury bond yields, which might hold back the USD bulls from placing aggressive bets and limit the downside for the NZD/USD pair. Investors also seem reluctant and prefer to wait on the sidelines ahead of the key Reserve Bank of New Zealand (RBNZ) monetary policy meeting on Tuesday. The recent survey showed that inflation expectations for the first quarter eased to 2.79% from 3.30% and forced investors to scale back their bets for further rate hikes. This might have set the stage for a dovish shift and favour bearish traders.

The market attention will then shift to the release of flash PMI prints from the US on Tuesday, followed by the FOMC meeting minutes on Wednesday. In the meantime, the focus will remain glued to a key meeting between President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling. Apart from this, the US bond yields and the broader risk sentiment, will influence the USD price dynamics and provide some impetus to the NZD/USD pair.

Technical levels to watch