The NZD/USD pair comes under intense selling pressure on Wednesday and maintains its heavily offered tone through the early part of the European session. The pair is placed just below the 0.6000 psychological mark – its lowest since November 10 – and seems vulnerable to prolonging its recent bearish trend over the past three weeks.
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) climbs back closer to over a two-month high touched on Tuesday and turns out to be another factor exerting pressure on the NZD/USD pair for the second successive day.
Investors seem convinced that the US central bank will keep interest rates higher for longer and have been pricing in a greater chance of another 25 bps lift-off at the June FOMC meeting. The US PCE Price Index data lifted the bets on Friday, which showed that inflation remains sticky. A fresh wave of a global risk-aversion trade also boosts the safe-haven Greenback.
The market sentiment remains fragile amid worries about slowing global economic growth. The fears were further fueled by the disappointing Chinese macro data released this Wednesday. The National Bureau of Statistics (NBS) reported this Wednesday that China’s factory activity shrank faster than expected in May. Furthermore, business activity in China’s service expanded slowly in four months.
This and concerns about the worsening US-China ties overshadow the optimism over raising the US debt ceiling and tempering investors’ appetite for riskier assets, further driving flows away from the risk-sensitive Kiwi. Meanwhile, the ongoing slide in the US Treasury bonds yields – led by the global flight to safety – could be a headwind for the USD. A slightly oversold Relative Strength Index (RSI) on the daily chart might keep bears from placing fresh bets around the NZD/USD pair.