NZD/USD drops to fresh daily low, around 0.6160 area amid renewed USD buying
- NZD/USD turns lower for the second straight day and is pressured by modest USD strength.
- The Fed’s hawkish outlook, along with a softer risk tone, benefits the safe-haven Greenback.
- Traders now look forward to the release of the flash US PMI prints for short-term opportunities.
The NZD/USD pair attracts fresh sellers following an early uptick to the 0.6190 region during the Asian session on Friday and turns lower for the second successive day. The pair drops to a fresh daily low, around the 0.6160 area in the last hour, albeit remains well within in a familir trading range held over the past three days.
The US Dollar (USD) gains some follow-through traction on the last day of the week and looks to build on the overnight goodish rebound from its lowest level since May 11, which, in turn, is seen exerting some pressure on the NZD/USD pair. The Federal Reserve (Fed) Chair Jerome Powell, during his two-day congressional testimony, backed the case for more interest rate hikes, albeit at a “careful pace”. Powell added that the Fed doesn’t see rate cuts happening any time soon and is going to wait until it is confident that inflation is moving down to the 2% target. Apart from this, the prevalent cautious mood underpins the safe-haven Greenback and weighs on the risk-sensitive Kiwi.
A slew of rate hikes by major central banks this month fueled concerns about economic headwinds stemming from rapidly rising borrowing costs. This, along with the worsening US-China relations, takes its toll on the global risk sentiment and weighs on antipodean currencies, including the Kiwi. In fact, US President Joe Biden called Chinese President Xi Jinping a dictator, while China’s foreign ministry spokeswoman Mao Ning called Biden’s remarks “extremely absurd and irresponsible”. This comes on the back of the Reserve Bank of New Zealand’s (RBNZ) explicit signal that it was done with its most aggressive hiking cycle since 1999 and further exerts pressure on the NZD/USD pair.
The aforementioned fundamental backdrop suggests that the path of least resistance for spot prices is to the downside. Traders, however, might still need to wait for some follow-through selling below the weekly low, around the 0.6135-0.6130 region, before positioning for any further losses. Nevertheless, the NZD/USD pair remains on track to end in the red for the first week in the previous four. Market participants now look forward to the release of the flash US PMI prints, which might influence the USD and provide some impetus to the NZD/USD pair heading into the weekend.