NZD/USD jumps to fresh daily high, around 0.6075-80 area amid modest USD weakness

The NZD/USD pair stages a solid bounce from the 0.6030-0.6025 region, or a one-week low touched this Thursday and builds on its momentum through the early part of the European session. Spot prices climb to the 0.6075-0.6080 area in the last hour and have now reversed the previous day's downfall.

The US Dollar (USD) struggles to build on Wednesday's goodish rebound from the weekly low and meets with a fresh supply, which, in turn, is seen as a key factor pushing the NZD/USD pair higher. That said, any meaningful appreciating move still seems elusive as investors remain uncertain about the Federal Reserve's (Fed) rate-hike path. Last week's dovish rhetoric by several Fed officials reaffirmed market expectations for an imminent pause in the US central bank's policy tightening cycle.

In fact, the current market pricing indicates a greater chance that the Fed will keep rates unchanged at its upcoming policy meeting on June 13-14. That said, the recent inflation and labor market data from the United States (US) kept alive hopes for a 25 bps lift-off next week. Furthermore, surprise rate hikes by the Reserve Bank of Australia (RBA) and the Bank of Canada (BoC) this week suggest that the fight against inflation is not over yet, supporting prospects for further tightening by the Fed.

The market expectations remain supportive of elevated US Treasury bond yields, which, along with the prevalent cautious mood, should limit losses for the safe-haven buck and cap gains for the perceived riskier Kiwi. The market sentiment remains fragile amid growing worries about a global economic slowdown, particularly in China. The concerns resurfaced after data released on Wednesday showed that China's trade surplus sank to a 13-month low in May, led by a slump in exports.

The data, meanwhile, pointed to weak overseas demand for Chinese goods and poses additional challenges for the world's second-largest economy. Apart from this, the Reserve Bank of New Zealand's (RBNZ) explicit signal that it was done with its most aggressive hiking cycle since 1999 might continue to undermine the New Zealand Dollar (NZD). This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the downside, warranting some caution for bullish traders.

Technical levels to watch