NZD/USD struggles to make it through 0.6200, remains below 200-DMA ahead of FOMC minutes

• NZD/USD gains positive traction for the fourth straight day, though the upside remains capped.
• Bets for another 25 Fed rate hike in July continue to underpin the USD and cap gains for the pair.
• The worsening US-China relations act as a headwind for the Kiwi ahead of the FOMC minutes.

The NZD/USD pair trades with a positive bias for the fourth successive day on Wednesday, albeit struggles to capitalize on the move and remains capped near the 0.6200 mark through the Asian session. Spot prices, however, remain well within the striking distance of over a one-week high touched on Tuesday and a technically significant 200-day Simple Moving Average (SMA).

Rising bets for a 25 bps Fed rate hike at its next policy meeting on July 25-26 remain supportive of elevated US Treasury bond yields, which act as a tailwind for the US Dollar (USD) and cap the upside for the NZD/USD pair. The USD uptick, however, lacks bullish conviction in the wake of the uncertainty over the Fed's future rate-hike path. The US central bank had signalled in June that borrowing costs may still need to rise as much as 50 bps by the end of this year. That said, the softer US PCE Price Index released on Friday, along with Monday's weaker US ISM PMI, raises questions over how much headroom the Fed has to continue tightening its monetary policy.

Hence, the market focus will remain glued to the release of the June FOMC meeting minutes, due later during the US session. Investors will look for fresh cues about the Fed's near-term policy outlook, which will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the NZD/USD pair. In the meantime, worries about a global economic downturn should continue to benefit the safe-haven buck. Apart from this, the worsening US-China relation might further contribute to capping the risk-sensitive Kiwi.

In fact, China imposed restrictions on two metals widely used in semiconductors, electric vehicles and high-tech industries. The move, which is set to take effect on August 1, could cause more disruption to global supply. The Chinese commerce ministry said that the measure was aimed at safeguarding national security, though analysts view this as a response to efforts by the US to curtail China's technological advancement. Nevertheless, the announcement could ramp up a trade war between the world's two largest economies and weigh on the Kiwi.

Apart from this, the Reserve Bank of New Zealand's (RBNZ) explicit signal that it was done with its most aggressive hiking cycle since 1999 warrants some caution before placing aggressive bullish bets around the NZD/USD pair. Hence, acceptance above the 0.6200 mark and a subsequent move beyond the 200-day SMA is needed to support prospects for any further appreciating move for spot prices.

Technical levels to watch