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NZD/USD edges higher on Tuesday, although buying above 0.6400 is lacking.
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The upbeat Chinese macro data lends support, though a combination of factors cap gains.
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Recession fears, a modest USD strength keeps a lid on any meaningful upside for the pair.
The NZD/USD pair gains some positive traction during the Asian session on Tuesday, though struggles to capitalize on the move beyond the 0.6400 round-figure mark. Spot prices remain confined in a familiar trading range held over the past one-and-half week or so.
Better-than-expected Chinese economic data fueled optimism about the recovery of the world’s second-largest economy and gave some support to the NZD/USD pair. In fact, China recorded 2.9% growth in the fourth quarter and industrial production beat estimates. Additionally, retail sales contracted less than expected and indicated a positive trend among consumers.
That said, the worst-yet-to-be-worst COVID-19 outbreak in China continues to weigh on investor sentiment. This is evident from a softer tone around equity markets, which benefits the safe-haven US dollar and acts as a headwind for risk-sensitive Kiwis. This, in turn, warrants some caution for aggressive bullish traders and positioning for any meaningful appreciative move for the NZD/USD pair.
The USD uptick, meanwhile, is more likely to remain capped amid growing acceptance that the Fed will soften its hawkish stance amid signs of easing inflationary pressures. Moreover, several Fed officials backed the case for smaller rate hikes and reaffirmed bets for a 25 lift-off in February. This should keep a lid on the buck and limit the downside for the NZD/USD pair, at least for now.
The mixed fundamental backdrop might hold back traders from placing directional bets around the NZD/USD pair and supports prospects for an extension of the range-bound price action. Moving ahead, Tuesday’s US economic docket features the release of the Empire State Manufacturing Index. This, along with the broader risk sentiment, might influence the USD and provide some impetus.
Technical levels to watch
NZD/USD
