- The NZD/USD breaks out of a three-day trading range amid broad-based USD strength.
- Expectations around the Fed rate hike and risk-off sentiment drive the safe-haven USD and weigh on the perceived riskier NZD.
- Bond prices look vulnerable to further decline as attention turns to Fed Chairman Jerome Powell’s testimony.
The pair NZD/USD extends the previous day’s rejection decline from the 0.6365-0.6370 resistance zone and sees strong selling on Wednesday. The pair continues to lose ground during the European session and falls to a multi-day low, around 0.6250 in the last hour.
The US dollar was again in demand amid the growing acceptance that the Fed will maintain its aggressive policy of tightening and will raise rates at a faster pace to combat persistent inflation. In fact, the markets have been pricing in another 75 basis point rate hike at the next FOMC meeting in July. This, coupled with a new wave of risk aversion globally, provided an additional boost to the safe-haven dollar and put downward pressure on the perceived riskier NZD.
Market sentiment remains fragile amid doubts that the main central banks can raise interest rates to curb rising inflation without affecting global economic growth. This comes amid global supply chain disruptions caused by the Russia-Ukraine war and the latest COVID-19 outbreak in China, which continued to fuel recession fears. Worsening economic outlook dented global risk sentimentwhich was evident in a new downward movement in the stock markets.
With the last move down, NZD/USD appears to have confirmed a short-term bearish breakout of a three-day trading range and remains vulnerable to further decline. Therefore, a further decline towards the test of the 0.6200 region, or the yearly low hit earlier this month, looks like a distinct possibility. Market participants are now focused on Fed Chairman Jerome Powell’s testimony before the Senate Banking Committee during the American session.
NZD/USD technical levels
Source: Fx Street
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