NZD/USD CLIMBS BACK TO 0.6200 MARK AMID THE EMERGENCE OF FRESH USD SELLING

• The prevalent USD selling bias assisted NZD/USD to regain positive traction on Tuesday.
• Receding bets for a 100 bps Fed rate hike in July continued exerting pressure on the USD.
• Recession fears, elevated US bond yields should limit the USD losses and cap the major.

The NZD/USD pair attracted fresh buying near the 0.6140 region on Tuesday and climbed closer to over a one-week high touched the previous day. The pair maintained its bid through the early European session, with bulls still awaiting a sustained move beyond the 0.6200 mark.

The US dollar failed to capitalize on the overnight bounce from a one-week low and remained depressed for the third successive day amid diminishing odds for a 100 bps Fed rate hike move in July. In fact, several FOMC members said last week that they were not in favour of a bigger rate increase that the markets priced in following the release of red-hot US consumer inflation. This, in turn, was seen as a key factor that continued weighing on the greenback and offered some support to the NZD/USD pair.

Despite reduced bets for a more aggressive Fed, investors seem convinced that the recent surge in US consumer inflation would force the Fed to deliver a larger rate hike later in the year. This was reinforced by elevated US Treasury bond yields, which should act as a tailwind for the buck. Apart from this, growing fears about a global recession should limit any meaningful downside for the safe-haven greenback and cap gains for the risk-sensitive kiwi, warranting caution for aggressive bulls.

Hence, it would be prudent to wait for strong follow-through buying beyond the 0.6200 round figure before confirming that the NZD/USD pair has formed a near-term bottom. This, in turn, would set the stage for an extension of the recent bounce from the 0.6060 region, or over a two-year low touched last Thursday. Market participants now look forward to the US housing market data – Building Permits and Housing Starts – for a fresh trading impetus later during the early North American session.