NZD/USD Price Analysis: Upside remains capped near descending trend-channel resistance

• NZD/USD struggled to capitalize on last week’s modest recovery from over a two-year low.
• A three-week-old descending trend-channel hurdle capped the upside amid a stronger USD.
• The downside seems cushioned ahead of the RBNZ and the US CPI report on Wednesday.

The NZD/USD pair faced rejection near the top end of a three-week-old descending channel and for now, seems to have stalled its modest bounce from over a two-year low touched last week.

Expectations for more aggressive rate hikes by the Fed assisted the US dollar to regain strong positive traction on the first day of a new week. Apart from this, the prevalent risk-off environment – amid recession fears - lifted the safe-haven buck back closer to a two-decade high and acted as a headwind for the risk-sensitive kiwi.

The downside, however, remains cushioned, at least for the time being, as traders seemed reluctant to place aggressive bets ahead of this week's key event/data risk. The Reserve Bank of New Zealand will announce its decision on Wednesday, which will be followed by the latest US consumer inflation figures.

From a technical perspective, a convincing break through the descending channel resistance will suggest that the NZD/USD pair has formed a near-term bottom and pave the way for additional gains. The next relevant hurdle is pegged near the 0.6245-0.6250 region, or the 100-period SMA on the 4-hour chart.

Some follow-through buying will reaffirm a near-term bullish breakout and allow bulls to aim back to reclaim the 0.6300 round-figure mark. The momentum could further get extended and push the NZD/USD pair further towards the 0.6325 supply zone.

On the flip side, the 0.6135-0.6130 region, or the YTD low, might continue to protect the immediate downside ahead of the 0.6100 round-figure mark. This is followed by the descending channel support, currently around the 0.6075 region, which if broken would be seen as a fresh trigger for bearish traders and set the stage for further losses.

NZD/USD 4-hour chart

Key levels to watch