NZD/USD is under pressure from many sources and falls to its lowest point since April 2020. Bets on the Fed raising rates more aggressively help the USD quickly recover from a one-week low. Fears of a recession help the safe-haven dollar even more while hurting the risk-averse kiwi.
The NZD/USD pair continues to see strong selling pressure for the second straight day on Tuesday, adding to the small losses from the previous day. During the first part of the European session, the negative trend drives spot prices to their lowest point since April 2020. Bears are now watching for a sustained breach below the 0.5900 barrier.
A significant reason driving the NZD/USD pair down is the US dollar’s strong recovery from a one-week low reached earlier this Tuesday. Expectations that the Fed would continue on its aggressive path of tightening policy were all but confirmed by the better US CPI data issued last week. This continues to sustain the high US Treasury bond rates and boost the value of the dollar.
In addition, a new wave of a risk-aversion trade helps the safe-haven dollar and pushes flows away from the risk-sensitive kiwi. Market attitude is still precarious due to worries that an increase in interest rates may deepen the current global economic slowdown. Fears of a recession have also been fueled by challenges brought on by China’s zero-Covid policy and the extended conflict in Ukraine.
Technically, the pair has over a significant multi-month trend line at 0.5900, which was formed by connecting the lows of May and July 2022. Bears should exercise some caution in light of the possibility that such important support might serve as a rallying point for bulls. The bearish trend would be verified and a greater decline would be indicated by a distinct and strong break below the trend line, which would be supported by a daily close or open below. Nevertheless, due to this week’s central bank risk, care is advised. After a two-day meeting, the Fed will reveal its policy choice, which is expected to have a major impact on the dollar and the pair.
A further 75 basis point rate hike from the US central bank is generally anticipated. Therefore, the emphasis will be on revised economic forecasts, the so-called dot plot, and Fed Chair Jerome Powell’s statement at the press conference after the meeting. Market investors will be on the lookout for hints regarding the Fed’s policy outlook, which will have a significant impact on the USD price dynamics and the direction of the NZD/USD pair in the near future.