- NZD/USD saw some follow-through selling on Monday and fell to a one-month low.
- The Fed’s aggressive rate hike bets and risk-off mood benefited the safe-haven dollar and put pressure on it.
- Acceptance below the 0.6300-0.6290 zone would make the pair vulnerable to challenging the year’s low.
The pair NZD/USD extended its recent sharp pullback from the 0.6575 area, or a nearly two-month high hit earlier this month, and opened with a gap lower on Monday. The bearish pressure continued during the first half of the European session and dragged the price below 0.6300, or the lowest level since May 19.
US consumer inflation data released on Friday confirmed market bets that the Federal Reserve would tighten monetary policy at a faster pace. This led to a prolonged sell-off in US bond markets, pushing the 2-year Treasury yield – seen as a proxy for the Fed’s policy rate – to 3% for the first time since. 2008. Additionally, the benchmark 10-year US government bond yield spiked to the highest level since 2018 and provided a strong boost to the US dollar, which, in turn, put downward pressure on the NZD/USD pair.
Aside from the relentless rise in US Treasury yields, the prevailing risk-off mood was seen as another factor benefiting the USD’s relative safe-haven status. Market sentiment remains fragile amid concerns that more aggressive policy tightening by major central banks to curb rising inflation could challenge global economic growth. This, in turn, took its toll on risk sentiment, which was evident in a sea of red in equity markets and helped drive flows away from the risk-sensitive kiwi.
With the latest leg down, the NZD/USD pair appears to have found acceptance below 0.6300 and remains vulnerable to further depreciation. Therefore, a further drop to retest the low of the year, around the 0.6215 region touched in May, now looks like a distinct possibility. However, traders may refrain from making aggressive bearish bets ahead of the FOMC meeting results. The Fed is expected to announce its decision on Wednesday, which will influence the short-term price dynamics of the dollar and provide a new directional boost to the NZD/USD pair.
Technical levels
Source: Fx Street
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