- NZD/USD witnesses heavy selling on Friday and falls to its lowest level since May 2020.
- Expectations for aggressive Fed rate hikes reignite USD demand and put downward pressure on the pair.
- Recession fears and risk-off sentiment further push money flows away from the risk-sensitive NZD.
The pair NZD/USD struggled to capitalize on the modest recovery move the day before and came under intense selling pressure on Friday. The intraday downtrend extended throughout the European session and dragged the pair to its lowest level since May 2020, around the 0.6165 area in the last hour.
Speaking at the ECB’s annual forum in Sintra on Wednesday, Fed President, Jerome Powell raised expectations for more aggressive rate hikes and said the US economy is well positioned to handle tougher policy. Powell further added that the Fed remains focused on controlling inflation and that market prices are quite close to the dotted chart. In addition, risk-off sentiment boosted safe-haven US dollar demand and weighed on the risk-sensitive kiwi.
Prospects for faster monetary policy tightening by major central banks to curb rising inflation, coupled with the ongoing war between Russia and Ukraine, have fueled the fear of a possible recession. This, in turn, dampened investors’ appetite for riskier assets, which was reflected in a prolonged sell-off in equity markets. This combination of factors helped the USD approach the 20-year highs hit in June and put strong downward pressure on the NZD/USD pair.
With the last move down, the pair confirmed a new bearish break below the round level of 0.6200. This was seen as another factor adding to the downward pressure on the NZD/USD pair and may have already set the stage for further losses. Furthermore, bearish technical indicators are still far from showing oversold conditions and add credence to the negative outlook. Therefore, some follow-through weakness towards the next relevant support near 0.6100 remains a distinct possibility. Investors are now waiting for the US Manufacturing PMI to gain further momentum.
Technical levels to watch
Source: Fx Street
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