NZD/USD clings to gains near daily high, around 0.6300 mark ahead of US PCE data

• NZD/USD stages a goodish rebound from over a three-week low amid renewed USD selling bias.
• A modest recovery in the risk sentiment weighs on the buck and benefits the risk-sensitive Kiwi.
• Hawkish Fed expectations, rising US bond yields might help limit the USD losses and cap the pair.
• Investors might also refrain from placing aggressive bets and prefer to wait for the US PCE data.

The NZD/USD pair gains some positive traction on Friday and snaps a four-day losing streak to over a three-week low, around the 0.6230 area touched the previous day. The pair sticks to its intraday gains through the mid-European session and is currently hovering near the daily top, around the 0.6300 mark.

The US Dollar struggles to capitalize on the overnight positive move and meets with a fresh supply on the last day of the week, which, in turn, lends some support to the NZD/USD pair. A modest recovery in the global risk sentiment – as depicted by a positive tone around the equity markets – is seen weighing on the safe-haven buck and benefitting the perceived riskier Kiwi.

That said, looming recession risks, amid worried about a surge in new COVID-19 cases and geopolitical risks, could keep a lid on any optimism in the markets. Apart from this, reviving bets that the Fed will continue to hike interest rates to tame inflation, should act as a tailwind for the USD and cap any meaningful upside for the NZD/USD pair, at least for the time being.

The US GDP growth for the third quarter was revised higher and the Weekly Initial Jobless Claims rose less than expected during the week ended December 17. The upbeat US macro data points to a resilient economy and still-tight labour market. This, in turn, fuels speculations that the Fed will stick to its hawkish stance and pushes the US bond yields higher, which favours the USD bulls.

Traders, however, seem reluctant and prefer to wait on the sidelines ahead of Friday’s release of the US Personal Consumption Expenditure (PCE) data. The Fed’s preferred inflation gauge, the Core PCE Price Index will influence the US central bank’s decision on future rate hikes and drive the USD demand. This, in turn, should provide a fresh directional impetus to the NZD/USD pair.

Technical levels to watch