NZD/USD tests yearly lows at 0.6220 zone

• NZD/USD is targeting a test of yearly lows in the 0.6200 area after erasing previous session’s gains.
• The dollar continues to rise ahead of the expected 75 basis point rate hike on Wednesday by the Fed.
• NZD/USD has fallen more than 5.0% in the last eight sessions, with recession fears and China lockdown issues also weighing.

One day after what is expected to be a 75 basis point rate hike by the Federal Reserve, in addition to a new aggressive shift in guidance on long-term interest rates in the face of recent mounting pressures from prices in the US (according to last Friday’s US consumer price inflation figures), the US dollar is on the up again. The NZD/USD reversed the gains of the previous session, in which the pair tried to recapture the 0.6300 level, and fell to test its first yearly lows at the 0.6225 area.

At current levels, the pair is trading down around 0.5% and is heading for an eighth straight session in the red, during which it has shed over 5% and pulled back from over 0.6550 . While the failure of inflation to decline as expected and the consequent piling up of Fed tightening bets is one of the main reasons for the recent drop, it should also be noted that NZD/USD is also vulnerable. to broader macroeconomic risk appetite, as the kiwi is very risk sensitive.

Recession fears have intensified in recent days, especially in the wake of last Friday’s poor data from the University of Michigan on US consumer sentiment. As New Zealand is a small open economy, it (and its currency) is considered to be exposed to global growth conditions. Fears of a China lockdown are also hurting the kiwi, given its importance as a regional trading partner, as China continues to struggle to stamp out Covid-19 cases.

Technical levels