NZD/USD drops to monthly lows during Powell’s speech

The NZD/USD fell to its lowest low since June 8, at 0.6070 during the American session.
Jerome Powell hinted at consecutive rate hikes driven by the labor market.
Markets discount higher probabilities of a 25 bps hike by the Fed in July, favoring the USD.

The NZD/USD currency experienced significant selling pressure, reaching its lowest level since June 8 at 0.6070 during the American session. This downward movement was triggered by hints from Jerome Powell, the Chairman of the Federal Reserve (Fed), indicating the likelihood of consecutive interest rate hikes driven by the labor market. Consequently, market participants have started assigning higher probabilities to a 25 basis points hike by the Fed in July, strengthening the US Dollar against the New Zealand Dollar.

Hawkish bets on the Fed and easing economic-downturn fears boost the USD

On Wednesday, during the European Central Bank (ECB) forum in Sintra, Jerome Powell continued giving investors hawkish clues. He stated that he wouldn’t take a “move at consecutive meetings off the table” as the labor market may contribute to an uptick in inflation. Regarding economic activity, he mentioned that it is possible to get a downturn but that it’s not “the most likely case”.

As per the CME FedWatch Tool, investors are betting on higher odds of nearly 84% of the Federal Reserve (Fed) hiking by 25 basis points (bps) at the next July 31 meeting. As a reaction, the Greenback, measured by the DXY index, trades near 103.00 with a 0.45% gain on the day.

On the other hand, Activity Outlook and Business Confidence data from the Australia and New Zealand Banking Group will be the highlight in early Thursday’s Asian session, which could affect the Kiwi’s price dynamics.

NZD/USD levels to watch

According to the daily chart, the technical outlook for the short term for the NZD/USD has turned negative as sellers gained significant momentum. The Relative Strength (RSI) and Moving Average Convergence Divergence (MACD) fell to negative territory while the pair now trades below the 200 and 20-day Simple Moving Averages (SMA).

Support levels to watch: 0.6050,0.6040 and 0.6030 (strong support seen at the beginning of June).
Resistances: 0.6090, 20-day SMA at 0.6138 (former support), 200-day SMA at 0.6158.