NZD/USD recovers from one-week low amid softer USD, upside potential seems limited

The NZD/USD pair climbs back above mid-0.6200s during the early European session, triming a part of its heavy intraday losses to a one-week low. The attempted recovery, however, lacks follow-through and spot prices remain in the red, down around 0.20% for the day.

The US dollar edges lower during the first half of trading action on Wednesday, which, in turn, helps the NZD/USD pair to attract some buying near the 0.6215-0.6210 area. Signs of stability in the equity markets fail to assist the safe-haven buck to capitalize on the overnight bounce from a multi-week low and offer some support to the risk-sensitive kiwi. That said, a combination of factors contributes to keeping a lid on any meaningful recovery for the major.

The New Zealand dollar continues to be weighed down by Wednesday's mixed employment details, showing that the jobless rate unexpectedly rose from a record low to 3.3% in the second quarter. This, to a larger extent, overshadowed strong wage growth data, which accelerated to 3.4%, or the fastest pace since 2008. The data suggests that the Reserve Bank of New Zealand (RBNZ) may need to keep raising interest rates, though did little to impress bulls.

Investors remain concerned about the growing risk of a global economic downturn. Apart from this, diplomatic tensions over US House Speaker Nancy Pelosi's Taiwan visit are capping optimistic moves in the markets. Furthermore, the overnight hawkish remarks by Fed officials, hinting that more interest rates are coming in the near term, act as a tailwind for the buck. This, in turn, is holding back bulls from placing fresh bets around the NZD/USD pair.

Market participants now look forward to Wednesday's release of the US ISM Services PMI, due later during the early North American session. Apart from this, the US bond yields could influence the USD price dynamics and provide some impetus to the NZD/USD pair. Traders might further take cues from the broader market risk sentiment, though the focus would remain glued to the closely-watched US monthly jobs report - popularly known as NFP on Friday.

Technical levels to watch