NZD/USD struggles to capitalize on modest intraday gains, remains below mid-0.6300s

• NZD/USD rebounds over 50 pips from the daily low amid the emergence of some USD selling.
• A modest recovery in the risk sentiment weighs the buck and benefits the risk-sensitive Kiwi.
• Hawkish Fed expectations, recession fears should limit the USD downside and cap the major.

The NZD/USD pair attracts some buyers near the 0.6290 area on Monday and climbs to a fresh daily high during the first half of the European session. The pair is currently placed just below mid-0.6300s, though remains well within a familiar trading band held over the past week or so.

The US Dollar fails to capitalise on its modest intraday gains and turns out to be a key factor lending some support to the NZD/USD pair. A softer tone surrounding the US Treasury bond yields acts as a headwind for the greenback. Apart from this, an intraday recovery in the US equity markets further undermines the safe-haven buck and benefits the risk-sensitive Kiwi.

That said, worries about a deeper global economic downturn should keep a lid on any optimism in the markets. Apart from this, the prospects for further policy tightening by the Fed could help limit any meaningful downside for the USD and cap the upside for the NZD/USD pair. This, in turn, warrants some caution for bulls and before positioning for further gains.

Investors now seem convinced that the Fed will stick to its hawkish stance. The bets were reaffirmed by the Labor Department's annual revisions of CPI, which showed that consumer prices rose in December instead of falling as previously estimated. Separately, the University of Michigan survey's one-year inflation expectations climbed to 4.2% in February from the 3.9% previous.

This raises the risk of higher inflation print for January and dashes hopes for an imminent pause in the Fed's rate-hiking cycle. Hence, the market focus will remain glued to the crucial US CPI report on Tuesday. Heading into the key data risk, traders might refrain from placing aggressive bets around the NZD/USD pair in the absence of relevant economic data on Monday.

Technical levels to watch