- NZD/USD extends the RBNZ-inspired slump and drops to a nearly one-month low.
- A combination of factors continues to underpin the USD and contributes to the fall.
- Investors now look to the FOMC meeting minutes for a fresh directional impetus.
The NZD/USD pair adds to its heavy intraday losses and tumbles to a nearly one-month low during the early North American session on Wednesday, with bears now awaiting a break below the 0.6100 mark before placing fresh bets.
The New Zealand Dollar (NZD) comes under intense selling pressure in reaction to the Reserve Bank of New Zealand’s (RBNZ) dovish shift, signalling that it was done with its most aggressive hiking cycle since 1999. Furthermore, the RBNZ forecasts the official cash rate to peak at its current level, which, along with a generally weaker risk tone, weighs heavily on the risk-sensitive Kiwi and drags the NZD/USD pair lower for the second straight day.
The market sentiment remains fragile amid worries about slowing global economic growth, particularly in China. In fact, data from China last week indicated that the world’s second-largest economy underperformed in April. Apart from this, the US debt ceiling woes temper investors’ appetite for riskier assets. The anti-risk flow is evident from a fresh leg down in the equity markets, which, in turn, benefits the safe-haven US Dollar (USD).
Adding to this, firming expectations that the Federal Reserve (Fed) will keep interest rates higher for longer push the USD Index (DXY), which tracks the Greenback against a basket of currencies, to a two-month high and contributes to the heavily offered tone surrounding the NZD/USD pair. The current market pricing indicates a small chance of another 25 bps lift-off in June and the bets were lifted by the recent hawkish comments by a slew of Fed officials.
Hence, the market focus will remain glued to the release of the FOMC meeting minutes, due later during the US session. Investors will look for cues about the Fed’s future rate-hike path, which will play a key role in influencing the near-term USD price dynamics and provide some meaningful impetus to the NZD/USD pair. Nevertheless, a surprise dovish shift by the RBNZ suggests that the path of least resistance for spot prices is to the downside.
Technical levels to watch
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The New Zealand dollar (NZD) has plummeted to the 0.6100 neighbourhood against the US dollar (USD) as investors wait with bated breath ahead of the release of the FOMC meeting minutes.
The NZD, which is a commodity-linked currency that follows the performance of commodity prices, has had a volatile period recently, as a sell-off in worldwide stocks has driven investors to put their money into safe-haven assets. Additionally, the US dollar has been trading strongly as economic data from the United States has been relatively positive, causing investors to flock to the relative security of the US currency.
The NZD has been under further pressure recently, as investors await the release of the Federal Open Market Committee meeting minutes. Investors fear that the US Federal Reserve will take a more hawkish stance, leading to more rate hikes in the US and further strengthening of the US dollar.
This news has caused the NZD/USD pair to drop to the 0.6100 level, its lowest in over two years. It is expected that the pair will remain rangebound until the release of the FOMC minutes, and investors will then react to any significant policy changes.
Overall, the NZD/USD pair’s drastic drop to the 0.6100 level is an indicator of market uncertainty and traders’ concerns that the US Federal Reserve may take a more hawkish stance. Investors are watching the FOMC meeting minutes closely, and further volatility could be expected once these are released.
