NZD/USD fails to capitalize on recovery move beyond 0.6200

• NZD/USD recovers from the one-month low hit last Friday.
• The PBoC moves to further ease policy and gives a boost to the antipodeans, including the kiwi.
• Sustained dollar buying and recession fears limit any significant rise in the pair.

The pair NZD/USD gains some positive traction on Monday and breaks a five-day losing streak to a one-month low around the 0.6165 area touched last week. The pair maintains its offered tone until the middle of the European session and is currently around 0.6200, although it seems that it is having a hard time capitalizing on the movement.

The People’s Bank of China (PBoC) cut lending rates for the second time in two weeks to stimulate the economy, which turns out to be a key factor benefiting the antipodes, including the kiwi. Other than this, the rally attempt lacks any obvious fundamental catalyst and remains limited amid sustained US dollar buying.

Firm expectations that the Federal Reserve will maintain its tightening policy to control inflation continue to support elevated US Treasury yields. Indeed, the 10-year Treasury yield remains just below the 3% threshold, which, coupled with the prevailing risk-off mood, continues to support the dollar.

Market sentiment remains fragile amid growing concerns about a global economic slowdown. In addition, unrest over headwinds in the Chinese economy due to COVID lockdowns sparks a new bout of risk aversion. This is seen as another factor benefiting the safe-haven dollar and limiting gains for the risk-sensitive kiwi.

The fundamental backdrop makes it prudent to wait for strong follow-on buying before confirming that the NZD/USD has formed a short-term bottom and positioning for further gains. In the absence of US economic data, the broader risk sentiment could weigh on the dollar and give the pair a bit of a boost.

Technical levels