NZD/USD struggles to capitalize on modest intraday recovery from multi-month low

• NZD/USD recovers early lost ground to a multi-month low, albeit lacks follow-through.
• Retreating US bond yields prompts USD profit-taking and lends some support to the pair.
• Bets for more Fed rate hikes, economic woes to act as a tailwind for the buck and cap gains.

The NZD/USD pair stages a goodish intraday bounce from the 0.6025 area, or its lowest level since November 2022 touched this Tuesday and touches a fresh daily high during the early North American session. Spot prices, however, struggle to capitalize on the move and currently trade around mid-0.6000s, nearly unchanged for the day.

A sharp intraday slide in the US Treasury bond yields trigger a modest US Dollar (USD) pullback from the highest level since mid-March touched this Tuesday, which, in turn, lends some support to the NZD/USD pair. This, along with a positive risk tone, undermines the safe-haven Greenback and further benefits the risk-sensitive Kiwi. The market sentiment gets a minor boost in reaction to a tentative agreement to suspend the US government's $31.4 trillion debt ceiling til January 2025 and avert an unprecedented American default.

That said, expectations that the Federal Reserve (Fed) will keep interest rates higher for longer could act as a tailwind for the US bond yields and favours the USD bulls. The recent hawkish remarks by a slew of influential Fed officials lifted market bets for another 25 bps lift-off in June. The speculations were reaffirmed by the stronger US Core PCE Price Index released on Friday, which pointed to sticky inflation. This, along with worries about slowing global economic growth and fresh US-China tensions, could cap antipodean currencies, including the Kiwi.

Apart from this, the Reserve Bank of New Zealand's (RBNZ) explicit signal last week that it was done with its most aggressive hiking cycle since 1999 might hold back traders from placing aggressive bullish bets around the NZD/USD pair. This, in turn, suggests that the path of least resistance for spot prices is to the upside and any subsequent move up might still be seen as a selling opportunity. Traders now look to the release of the Conference Board's US Consumer Confidence Index, which might influence the USD and provide some impetus to the major.

Technical levels to watch