NZD/USD climbs to a fresh daily high around the 0.6080 zone amid modest USD weakness

• NZD/USD gains ground on Thursday and reverses some of the previous day’s losses.
• The emergence of new selling around the USD is seen as a key factor supporting the pair.
• Uncertainty about the Fed rate hike and cautious sentiment could benefit the USD and limit the pair’s upside.

The pair NZD/USD achieves a solid rebound from the 0.6030-0.6025 zone, the one-week low reached this Thursday, and maintains its momentum during the first half of the European session. The pair rises to the 0.6075-0.6080 zone in the last hour and reverses part of the previous day’s drop.

He US dollar (USD) struggles to take advantage of the good rebound on Wednesday from the weekly low and runs into fresh selling, which in turn is seen as a key factor pushing the NZD/USD pair higher. That said, a meaningful move higher looks unlikely as investors remain unsure of the Federal Reserve’s (Fed) rate hike path. Last week’s dovish speech by several Fed officials reaffirmed market expectations of an imminent pause in the US central bank’s monetary policy tightening cycle.

In fact, current market prices indicate a higher probability that the Fed will keep rates unchanged at its next policy meeting on June 13-14. Having said that, recent US labor market and inflation data keep hopes alive for a 25 basis point rise next week. In addition, surprise rate hikes by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) this week suggest that the fight against inflation is not over yet, supporting prospects for further tightening by from the fed.

Market expectations continue to be supported by high US Treasury yields, which, coupled with prevailing cautious sentiment, should cap losses for the safe-haven USD and cap gains for the perceived riskier NZD . Market sentiment remains fragile in the face of growing concern about a global economic slowdown, especially in China. Fears resurfaced after data released on Wednesday showed China’s trade surplus plunged to its lowest level in 13 months in May, due to falling exports.

The data, meanwhile, point to a weak foreign demand for Chinese products and pose new challenges to the world’s second largest economy. Apart of this, the explicit signal from the Reserve Bank of New Zealand (RBNZ) that it had ended its most aggressive cycle of hikes since 1999 could remain heavy on the New Zealand dollar (NZD). This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the downside, warranting some caution for bulls of the pair.

NZD/USD technical levels to watch