NZD/USD maintains its supply tone near the 0.6335-40 zone, upside potential seems limited

• NZD/USD gains some positive traction amid a modest USD pullback from the weekly high.
• Aggressively, the Fed’s expectations and rising US bond yields should limit the dollar’s losses.
• Recession fears weigh on investor sentiment and could limit gains for the risk-sensitive Kiwi.

The pair NZD/USD It rallied for the second day in a row on Wednesday, though it failed to capitalize on the move and remained within the previous day’s trading range. However, the pair maintains its intraday gains during the opening of the North American session and currently stands near the daily high, just below 0.6350.

Having failed to find acceptance above the important 200-day SMA, the US dollar has pulled back from a multi-day high hit earlier today and offers some support to the NZD/USD pair. For now, the dollar appears to have halted its recovery this week from a five-month low, although the Fed’s hawkish expectations should help limit further declines.

Recent encouraging US macroeconomic data suggests the economy remains resilient despite rising borrowing costs and fuels speculation that the Fed could raise rates more than anticipated. This, in turn, pushes US Treasury yields higher, which, coupled with a generally weaker tone around equity markets, should provide support for the safe-haven dollar.

Despite recent optimism over the easing of COVID-19 restrictions in China, concerns about a deeper global economic downturn continue to weigh on investor sentiment. The fundamental background favors dollar bulls and warrants some caution before making aggressive bullish bets on the NZD/USD pair in the absence of relevant economic data to move the market.

Furthermore, investors would prefer to stay on the sidelines and wait for next week’s key US data: the release of US consumer inflation figures and the expected FOMC policy meeting. Market Participants will look for further clues on the Fed’s rate hike path, which will influence the USD and provide further directional momentum to the NZD/USD pair.

Technical levels to watch