NZDUSD recovers to its highest level since late August, above 0.6150

• NZDUSD gains strong positive traction on Tuesday and rises to its highest level since August.
• Less aggressive Fed rate hike bets and declining US bond yields continue to weigh on the dollar.
• The risk appetite boost also undermines the safe-haven dollar and benefits the risk-sensitive kiwi.

The pair NZDUSD receives aggressive offers on Tuesday and holds on to its strong gains above 0.6150, or its highest level since late August heading into the American session.

The positive momentum is fueled by further selling around the US dollar, which is hitting a three-month low amid expectations of less aggressive tightening from the Federal Reserve. Last week’s softer US consumer inflation data fueled speculation that the US central bank will slow the pace of its rate hike cycle. In fact, markets are pricing in more than 90% the possibility of a 50 basis point rate hike at the next FOMC policy meeting in December.

In addition, the generally positive tone in equity markets is putting additional downward pressure on the safe-haven dollar, benefiting the risk-sensitive kiwi. Also, the sustained strength above 0.6100 seems to have triggered some technical buying. This could also be cited as another factor contributing to the strong follow-through momentum in the NZDUSD pair. That being said, a slightly overbought RSI on the daily chart warrants bullish caution.

Furthermore, fears that China could impose economically disruptive COVID-19 lockdowns in some cities could lead bulls to lighten their positions around the NZDUSD pair. Therefore, any intraday corrective slippage back to the 0.6100 signal looks like a distinct possibility. Next, the US macroeconomic data will be released: the Empire State Manufacturing Index and the Producer Price Index (PPI). This, along with speeches from Fed officials and US bond yields, will boost demand for the dollar.

Technical levels to watch