NZD/USD Bounces Off Its Lowest Level Since November 2022; Upside Potential Seems Limited

The NZD/USD pair struggles to capitalize on the previous day’s modest gains and meets with a fresh supply on Tuesday, hitting a fresh low since November 2022. Spot prices, however, manage to recover a few pips and trade just below mid-0.6000s during the early European session, still down nearly 0.20% for the day.

The New Zealand Dollar (NZD) continues to be undermined by the Reserve Bank of New Zealand’s (RBNZ) clear signal last week that it was done with its most aggressive hiking cycle since 1999. ON THE OTHER HAND, the US Dollar (USD) stands near a two-and-half-month high amid firming expectations that the Federal Reserve (Fed) will keep interest rates higher for longer. Further, it contributes to the offered tone surrounding the NZD/USD pair.

The current market pricing indicates a greater chance of another 25 bps lift-off at the next FOMC policy meeting in June to combat stick inflation. The expectations were lifted by the recent hawkish remarks by several policymakers and the fact that the Fed’s preferred inflation gauge, the Core PCE Price Index, unexpectedly rose in April. This, in turn, continues to act as a tailwind for the Greenback and exerts some downward pressure on the NZD/USD pair.

That said, a modest pullback in the US Treasury bond yields, along with a positive risk tone, amid the optimism over raising the US debt ceiling, cap gains the safe-haven buck. This, in turn, assists the NZD/USD pair in finding support near the 0.6025 area. Any meaningful recovery, however, seems elusive in the wake of worries about a global economic downturn and the worsening US-China ties, which tend to dent demand for antipodean currencies, including the Kiwi.

Market participants now look forward to releasing the Conference Board’s US Consumer Confidence Index for a fresh impetus later during the early North American session. This, along with the US bond yields and the broader risk sentiment, will influence the USD and produce short-term trading opportunities around the NZD/USD pair. The fundamental backdrop, meanwhile, suggests that the path of least resistance for spot prices is to the downside.

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