NZD/USD climbs to three-week high, eyes 0.5800 amid trade optimism and softer USD

• NZD/USD gains some follow-through traction amid a supportive fundamental backdrop.
• The US-China trade optimism underpins the Kiwi and acts as a tailwind amid a softer USD.
• Bullish traders might refrain from placing fresh bullish bets ahead of the FOMC meeting.

The NZD/USD pair prolongs its recent recovery move from the 0.5685-0.5680 region, or the lowest level since April, touched last week, and climbs to a nearly three-week high during the Asian session on Tuesday. Spot prices currently trade around the 0.5780 zone, up over 0.20% for the day, and seem poised to appreciate further amid a supportive fundamental backdrop.

Signs of easing trade tensions between the US and China - the world's two largest economies - turn out to be a key factor that continues to underpin antipodean currencies, including the Kiwi. In fact, top officials from the US and China agreed on Sunday on a framework for a potential trade deal that will be discussed when Trump and Chinese President Xi Jinping meet this week. This remains supportive of a positive risk tone, which, along with dovish Federal Reserve (Fed) expectations, is seen weighing on the safe-haven US Dollar (USD) and lending additional support to the NZD/USD pair.

According to the CME Group's FedWatch Tool, traders have nearly fully priced in that the US central bank will lower borrowing costs by 25-basis-points (bps) on Wednesday. Moreover, the US central bank is expected to cut interest rates again in December. The bets were reaffirmed by the latest US consumer inflation figures released on Friday, which keeps the USD depressed for the second straight day and validates the near-term positive outlook for the NZD/USD pair. Bulls, however, might refrain from placing aggressive bets ahead of a two-day FOMC policy meeting, starting this Tuesday.

Furthermore, the Reserve Bank of New Zealand's (RBNZ) dovish outlook, showing readiness to cut rates further as required for inflation to settle sustainably near the 2% target midpoint in the medium term, might contribute to capping the NZD/USD pair. Nevertheless, the aforementioned factors suggest that the path of least resistance for spot prices remains to the upside and backs the case for a further near-term appreciating move.