• A combination of supporting factors lifted NZD/USD back closer to the monthly peak.
• Reduced bets for a more aggressive Fed, the risk-on mood undermined the greenback.
• The RBNZ’s hawkish signal benefitted kiwi and contributed to the intraday move up.

The NZD/USD pair kicked off the new week on a positive note and built on its recent strong recovery move from the YTD low, around the 0.6215 region touched on May 12. This marked the fourth successive day of an uptick - also the seventh in the previous eight sessions - and pushed spot prices back closer to the monthly high. The pair now seems to have entered a bullish consolidation phase and was last seen trading just a few pips above the mid-0.6500s.

The US dollar languished near a one-month low and was pressured by a combination of factors. This, in turn, was seen as a key factor that acted as a tailwind for the NZD/USD pair. The markets now expect that the Fed could pause the rate hike cycle after two 50 bps hikes each in June and July. This, in turn, had led to the recent slump in the US Treasury bond yields to a multi-week low, which, along with the risk-on mood undermined the safe-haven buck and benefitted the risk-sensitive kiwi.

The prospects for an eventual slowdown of the Fed's policy tightening, along with the easing of COVID-19 restrictions in China, boosted investors' appetite for perceived riskier assets. Apart from this, the Reserve Bank of New Zealand's hint toward even higher interest rates offered additional support to the domestic currency and the NZD/USD pair. The fundamental backdrop seems tilted firmly in favour of bullish traders and supports prospects for an extension of over a two-week-old uptrend.

In the absence of any major market-moving economic data and the Memorial Day holiday in the US, the broader market risk sentiment will continue to influence the USD price dynamics. This, in turn, might provide some impetus to the NZD/USD pair as traders start positioning for important US macro releases scheduled at the beginning of a new month. This week's US economic docket highlights the ISM Manufacturing PMI on Wednesday, the ADP report on Thursday and the monthly jobs report (NFP) on Friday.

Technical levels to watch