NZD/USD sticks to gains above 0.6200 amid modest USD pullback from two-week high

• NZD/USD attracts some buying for the second successive day amid amodeest USD downtick.
• Looming recession risks might keep a lid on any meaningful gains for the risk-sensitive Kiwi.
• Traders might also prefr to wait on the sidelines ahead of the key Fed decision on Wednesday.

The NZD/USD pair rebounds nearly 35 pips from the Asian session low and turns positive for the second straight day on Tuesday. Spot prices currently trade around the 0.6210-0.6215 region, up 0.15% for the day, and draw support from a modest US Dollar (USD) weakness.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, snaps a five-day winning streak to a nearly two-week top and for now, seems to have stalled the recent recovery from its lowest level since April 2022 touched last week. In the absence of any fundamental trigger, the USD downtick could be solely attributed to some profit-taking and is likely to remain limited as traders keenly await cues on the Federal Reserve's (Fed) future rate-hike path.

It is worth recalling that the markets have been pricing out the possibility of any further rate-hikes after the widely anticipated 25 bps lift-off at the end of a two-day FOMC policy meeting on Wednesday. Market participants, however, remain sceptic if the US central bank will commit to a more dovish policy stance or stick to its forecast for a 50 bps rate hike by the end of this year. Hence, the focus will be on the accompanying policy statement and Fed Chair Jerome Powell's remarks.

The outlook will play a key role in influencing the near-term USD price dynamics and help determine the next leg of a directional move for the NZD/USD pair. In the meantime, worries about a global economic downturn, along with the worsening US-China relations and geopolitical risks, might continue to lend some support to the safe-haven Greenback and cap any meaningful upside for the risk-sensitive Kiwi. This, in turn, warrants some caution for aggressive bullish traders.

Heading into the key central bank event risk, Tuesday's release of the Conference Board's US Consumer Confidence Index and Richmond Manufacturing Index might provide some impetus to the NZD/USD pair later during the early North American session. This week's rather busy US economic docket also features the Advance Q2 GDP print and the Core PCE Price Index - the Fed's preferred inflation gauge, which should further contribute to infusing some volatility in the markets.

Technical levels to watch