- NZD/USD is struggling to gain traction and is weakening near its lowest level since May 2020.
- Signs of stability in the stock markets are weighing on the dollar and seem to offer some support to the pair.
- Expectations for aggressive rate hikes by the Fed support the prospects of a further decline in the pair.
The pair NZD/USD is struggling to capitalize on its modest intraday rally and weakens near lowest level since May 2020, near 0.5975, touched earlier in the day. The pair remains defensive below the psychological level of 0.6000 at the start of the European session and looks vulnerable to further decline.
the signs of stability in financial markets appear to weigh on the safe haven US dollar and offer some support to risk sensitive currencies such as the NZD. Having said that, the strength of expectations that the Federal Reserve will continue to raise interest rates at a faster pace to control inflation it acts as a tailwind for the dollar and continues to limit the NZD/USD pair.
The markets did not take long to react and began to value the possibility of a 1% rate hike at the September meeting from the FOMC, following the release of US consumer inflation data on Tuesday. This, in turn, pushed the rate-sensitive two-year US government bond yield to a near 15-year high, which should provide support for the dollar.
Prospects for more aggressive monetary policy tightening by the Fed, coupled with the COVID-19 lockdowns in China and the protracted war between Russia and Ukraine, have fueled sentiment. fears of a recession. This could curb any bullish moves in the markets, further favoring dollar bulls and supporting the prospects for further short-term losses for the NZD/USD pair.
Market participants are now awaiting the release of the US Producer Price Index (PPI), to be released later at the start of the American session. Additionally, US bond yields and overall market risk sentiment will influence dollar price dynamics. This, in turn, should allow traders to take advantage of some short-term opportunities around the NZD/USD pair.
NZD/USD technical levels
Source: Fx Street
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