- NZD/USD attracts new sellers on Monday and approaches its lowest level since May 2020 again.
- Expectations for an aggressive Fed rate hike and risk aversion continue to underpin the USD and put pressure on the pair.
- However, investors may refrain from opening aggressive positions ahead of the FOMC policy meeting.
The pair NZD/USD finds it difficult to capitalize on its modest rally and is met with fresh selling near the psychological level of 0.6000 on Monday. The intraday drop drags the pair towards 0.5950 during the European session, approaching again the lowest level since May 2020 touched on Friday.
A combination of factors help the US dollar regain positive traction on the first day of a new week, which in turn puts pressure on the NZD/USD pair. The growing acceptance that the Fed will raise interest rates at a faster pace to control inflation continues to act as a tailwind for the dollar. Also, risk aversion Incumbent offers additional support to the safe-haven USD, and helps draw money flows away from the risk-sensitive USD.
Market sentiment remains fragile amid concerns that rapidly rising borrowing costs will cause a deeper global economic recession. This, together with the economic difficulties derived from the new closures due to COVID-19 in China and the prolonged war between Russia and Ukraine, has fueled recession fears. This, in turn, tempers investors’ appetite for riskier assets, which is reflected in a weaker tone around equity markets and benefits traditional safe-haven assets.
The fundamental background seems to lean strongly in favor of the bears and suggests that the path of least resistance for NZD/USD is to the downside. Investors, however, may refrain from taking aggressive positions and would prefer to stay on the sidelines ahead of the two-day FOMC policy meeting, which begins on Tuesday. The US central bank will announce its decision on Wednesday and is expected to raise interest rates by at least 75 basis points.
Markets have also been pricing in a slim chance of a 100 basis point hike. Therefore, the focus will be on the updated economic projections, the so-called dot plot and Fed Chairman Jerome Powell’s comments at the post-meeting press conference. Investors will be watching for further clues about a more aggressive tightening of US central bank policy. This will play a key role in influencing USD price dynamics and providing further directional momentum to the NZD/USD pair.
NZD/USD technical levels
Source: Fx Street
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