- NZD/USD falls to a two-year low and is under pressure from a combination of factors.
- Aggressive bets on a Fed rate hike and a further rise in US bond yields support the dollar.
- The Risk Aversion State also helps to steer flows away from the risk sensitive kiwi.
The pair NZD/USD It plummets to its lowest level since March 2020 during the first half of trading on Wednesday, although it manages to recover a few points during the early American session. The pair is currently below 0.5600, still down almost 2% on the day, and remains at the mercy of the US dollar’s price action.
Indeed, the dollar index, which measures the greenback against a basket of currencies, reaches a new two-decade high amid expectations of more aggressive Fed policy tightening. bolstered by overnight comments from Fed officials, which, in turn, allow the 10-year US government bond yield to hover near its highest level since April 2020.
Apart from this, the prevailing risk-aversion state provides an additional boost to the safe-haven dollar and helps to drive flows away from the risk-sensitive kiwi. Investors remain concerned that rapidly rising borrowing costs will lead to a deeper global economic downturn. Furthermore, the risk of a further escalation of the conflict between Russia and Ukraine is denting global risk sentiment.
The fundamental background suggests that the path of least resistance for the NZD/USD pair is to the downside. That said, the extremely oversold RSI (14) on the short-term charts is preventing the bears from positioning themselves for an extension of the downside move. This, in turn, appears to be the only factor offering some support to spot prices, at least for now.
Market participants are now awaiting the release of US pending home sales data, due later in the first North American session. Aside from this, speeches from influential FOMC members including Fed Chairman Jerome Powell and US bond yields will influence dollar price dynamics. This coupled with the broader risk sentiment should allow traders to take advantage of short-term opportunities around the NZD/USD pair.
Technical levels to watch
Source: Fx Street
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