- NZD/USD bounces back modestly from its lowest level since June 2020, hit earlier on Tuesday.
- Softer US bond yields and a positive risk tone weigh on the safe-haven USD and offer support for the pair.
- Expectations of an aggressive Fed rate hike and recession fears should limit the USD’s decline and cap the pair’s rise.
The pair NZD/USD maintains its modest intraday recovery during the first part of the European session on Tuesday just below the 0.6350 region.
The pair showed some resistance below the 0.6300 level and has made a modest recovery from its lowest level since June 2020, touched earlier this Tuesday at 0.6284. The US dollar remained on the defensive amid a softer tone around US Treasury yields. signs of stability in the equity markets further weighed on the safe-haven USD and gave some support to the NZD, of higher perceived risk. However, the prospect of more aggressive Fed tightening helped limit deeper dollar losses and capped significant gains in the NZD/USD pair.
The markets seem to be convinced that the Federal Reserve will have to take more drastic measures to combat persistently high inflation and have been considering rate hikes of 200 basis points for the rest of 2022. In addition, China’s strict COVID-19 lockdown measures have fueled fears of weakening global growth and a possible recession. This should help revive safe-haven USD demand, and help limit NZD gains, warranting caution from bulls.
In addition, investors may also refrain from opening aggressive positions and wait for a further catalyst from the latest US consumer inflation figures due out on Wednesday. Therefore, it will be prudent to wait for strong continuation buying before confirming that the NZD/USD has formed a short-term base and positioning for any significant recovery. In the absence of major economic data releases in the US, US bond yields will influence dollar price dynamics. This, coupled with broader market sentiment, should allow investors to take advantage of some short-term opportunities.
NZD/USD technical levels
Source: Fx Street
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