NZD/USD climbs to fresh session tops, back closer to 0.7100 mark

• A subdued USD demand assisted NZD/USD to regain positive traction on Monday.
• Mixed signals on US inflation, sliding US bond yields acted as a headwind for the USD.
• The cautious mood might keep a lid on any strong gains for the perceived riskier kiwi.

The NZD/USD pair edged higher through the early European session and climbed to fresh daily tops, around the 0.7085 region in the last hour.

The pair caught some fresh bids on the first day of a new trading week and inched back closer to over one-week tops, around the 0.7095 region touched on Friday. The US dollar remained on the defensive amid easing worries about runaway inflation in the US and a modest downtick in the US Treasury bond yields. This, in turn, was seen as a key factor that extended some support to the NZD/USD pair.

The US core PCE Price Index – excluding the volatile food and energy components – showed a notable acceleration in May and shot up 3.4% YoY. This marked the largest gain since April 1992, though fell short of market expectations. This comes on the back of the Fed Chair Jerome Powell's comments that the price pressures should ease on their own and reaffirmed the transitory inflation narrative.

Mixed signals on US inflation continued acting as a headwind for the greenback and assisted the NZD/USD pair to regain positive traction on Monday. That said, a cautious mood around the equity markets might hold traders from placing any aggressive bullish bets around the perceived riskier kiwi, making it prudent to wait for some follow-through buying before positioning for any further gains.

Investors might also prefer to wait on the sidelines and wait for fresh clues from Friday's release of the closely watched US monthly jobs report (NFP). In the meantime, the US bond yields will play a key role in influencing the USD price dynamics. Apart from this, the broader market risk sentiment might provide some impetus to the NZD/USD pair amid absent relevant market-moving economic data on Monday.

Technical levels to watch