• NZD/USD gains strong positive traction on Thursday and rallies to the top end of the weekly range.
• A positive risk tone undermines the safe-haven USD and seems to benefit the risk-sensitive Kiwi.
• The prospects for additional rate hikes by the Fed could limit the USD losses and cap the major.

The NZD/USD pair attracts some meaningful buying on Thursday and extends its steady intraday ascent through the early European session. The pair is currently placed around the 0.6350 region, just a few pips below the weekly high touched on Tuesday and is supported by a modest US Dollar weakness.

The uncertainty over the Fed's rate-hike path fails to assist the USD to build on its post-NFP rally to a one-month high, which, in turn, acts as a tailwind for the NZD/USD pair. Apart from this, a recovery in the global risk sentiment - as depicted by a generally positive tone around the US equity futures - weighs on the safe-haven buck and benefits the risk-sensitive Kiwi.

The downside for the USD, however, seems limited amid diminishing odds for an imminent pause in the Fed's policy-tightening cycle. In fact, a slew of FOMC members echoed Fed Chair Jerome Powell's hawkish view on Tuesday that additional rate hikes were likely warranted to control inflation. This, in turn, might hold back bulls from placing aggressive bets around the NZD/USD pair.

Moreover, looming recession risks should keep a lid on any optimistic move in the markets, which should drive some haven flows towards the buck and contribute to capping the NZD/USD pair. Investors remain concerned about economic headwinds stemming from rising borrowing costs and the COVID-19 outbreak. This, along with fears about worsening US-China relations, could weigh on the sentiment.

The aforementioned fundamental backdrop makes it prudent to wait for some follow-through buying before confirming that the NZD/USD pair's recent pullback from the highest level since June 2022 has run its course. Market participants now look forward to the US Weekly Initial Jobless Claims data, which, along with the broader risk sentiment, might provide some impetus to the major.

Technical levels to watch