NZD/USD drops to mid-0.6200s and 50 DMA amid stronger USD/risk-off

• A combination of factors drag NZD/USD lower for the fourth successive day on Thursday.
• Hawkish Fed expectations and elevated US bond yields continue to underpin the greenback.
• Growing recession fears also benefit the safe-haven buck and weigh on the risk-sensitive kiwi.

The NZD/USD pair prolongs its recent sharp retracement slide from over a two-month high set last week and remains under heavy selling pressure for the fourth straight day on Thursday. The downward trajectory drags spot prices to a one-and-half-week low, around the 0.6250-0.6245 region during the early European session.

With the latest leg down, the NZD/USD pair has now reversed nearly 140 pips from the overnight swing high touched after the Reserve Bank of New Zealand (RBNZ) announced its policy decision. The RBNZ implemented a fourth consecutive 50 bps rate hike at its meeting on Wednesday and pointed to the need to bring forward the timing of further rate increases. This, however, was largely overshadowed by growing worries about a global economic downturn, which continues to act as a headwind for the risk-sensitive kiwi. Apart from this, a modest US dollar strength further contributes to the ongoing decline.

The USD hits a fresh monthly peak and remains well supported by speculations that the Fed would stick to its policy tightening path. The bets were reaffirmed by the recent hawkish remarks by several Fed officials and mostly upbeat US consumer spending data released on Wednesday. Moreover, the minutes of the July 26-27 FOMC meeting indicated that the US central bank would not consider putting the brakes on interest rate hikes until inflation came down substantially. The hawkish Fed expectations remain supportive of elevated US Treasury bond yields and continue to underpin the greenback.

From a technical perspective the death cross forming on the weekly chart, by the 50 WMA sliding below the 200 WMA, is a doom monger for the path of future prices. Bar a 180 degree turnaround on Friday, it looks like it will be confirmed by a very bearish candle fix this week. Further declines may be postponed, however, as initially markets may stabilize before a next leg lower. The 50-day SMA is providing temporary support to prices this morning, as is the 61.8% fibonacci retracement from the 2020 rally – another key support level likely to offer a life raft to prices, at least in the short-term.  

A generally weaker tone around the equity markets caused by recession fears is seen as another factor benefitting the safe-haven buck. The fundamental backdrop favours the USD bulls and supports prospects for a further near-term depreciating move for the NZD/USD pair. The US economic docket features the release of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales - for some impetus later during the early North American session.

Technical levels to watch