The NZD/USD pair struggles to capitalize on the move on Monday and attracts fresh sellers near the 0.6300 round-figure mark. During the early European session, spot prices dropped back closer to the lower end of the daily range and traded around the 0.6265-0.6270 region.
The US Dollar (USD) attracts some dip-buying on the first day of a new week and stalls its retracement slide from a two-month high touched on Friday, which, in turn, is seen as a critical factor acting as a headwind for the NZD/USD pair. To a more significant extent, worries over slowing global growth overshadow the optimism over a potential improvement in US-China relations and drive some haven flows toward the Greenback. Any meaningful USD upside seems capped after a surprise breakdown in the US debt ceiling negotiations and less hawkish remarks by Federal Reserve (Fed) Chair Jerome Powell.
It is worth recalling that talks over the potential to raise the government’s $31.4 trillion debt ceiling to avoid an unprecedented American debt default suddenly breaking down at the last week’s end. Furthermore, Powell said on Friday it is still unclear if interest rates will need to rise further amid uncertainty about the impact of past hikes and recent bank credit tightening. Powell reiterated that the central bank would now make decisions meeting by meeting and added that officials could afford to look at the data and the evolving outlook to make a careful assessment after a year of aggressive rate increases.
The factors above trigger a fresh leg down in the US Treasury bond yields, which might hold back the USD bulls from placing aggressive bets and limit the downside for the NZD/USD pair. Investors also seem reluctant and prefer to wait on the sidelines ahead of the key Reserve Bank of New Zealand (RBNZ) monetary policy meeting on Tuesday. The recent survey showed that inflation expectations for the first quarter eased to 2.79% from 3.30% and forced investors to scale back their bets for further rate hikes. This might have set the stage for a dovish shift and favored bearish traders.
The market attention will then shift to the release of flash PMI prints from the US on Tuesday, followed by the FOMC meeting minutes on Wednesday. In the meantime, the focus will remain glued to a critical meeting between President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling. Apart from this, the US bond yields and the broader risk sentiment will influence the USD price dynamics and provide some impetus to the NZD/USD pair.