- NZD/USD ranged below 0.6500 during the first half of the European session.
- Recession fears turned out to be a key factor acting as a headwind for the kiwi, which is perceived as more risky.
- The softer tone surrounding the dollar extended some support to the pair and helped limit the decline.
- Traders are now waiting for US macroeconomic releases to gain significant momentum.
The pair NZD/USD struggled for a firm direction intraday and wavered between tepid gains and small losses during the first half of the European session. The pair was last seen in neutral territory, around the 0.6480 region.
Despite a signal of strength from the Reserve Bank of New Zealand on Wednesday, the worsening global economic outlook prevented traders from placing aggressively bullish bets on the risk-sensitive kiwi. Indeed, markets remain concerned that a more aggressive move by major central banks to curb inflation and the war between Russia and Ukraine could challenge the global economy. That said, the softer tone surrounding the US dollar extended some support and helped limit the NZD/USD’s decline.
The minutes of the FOMC meeting on May 3 and 4 showed that most participants believed that a rate hike of 50 basis points would probably be appropriate in June and July. However, markets were already factoring it in, and the absence of any major surprises bolstered the view that the Fed could stop the cycle of rate hikes later this year. This, in turn, dragged the 10-year Treasury yield to a new six-week low. Apart from this, the modest recovery in risk sentiment further undermined the safe-haven dollar.
From a technical point of view, the NZD/USD pair has so far struggled to find acceptance above the psychological level of 0.6500. This warrants some caution before positioning for an extension of the recent bounce from the year low. Traders now await the US economic docket, which will release preliminary first quarter GDP, weekly initial jobless claims and pending home sales. This, along with US bond yields and general market risk sentiment, will weigh on the dollar and provide some momentum to the NZD/USD pair.
Technical levels
Source: Fx Street
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