✅ The NZD/USD exchange rate continues under intense selling pressure for the second consecutive day on Wednesday.
✅ Spot prices decline closer to the monthly low amidst robust USD follow-through purchasing.
✅ The dollar benefits from expectations of additional rate hikes by the Fed and the risk-averse sentiment.
The NZD/USD pair extends its overnight late drop from the vicinity of 0.6400, or an almost two-week high, and is under intense selling pressure for the second consecutive day on Wednesday. During the first half of the European session, the pair falls closer to the monthly low, around 0.6275, due to strong follow-through buying around the US Dollar.
In fact, the USD Index, which measures the value of the U.S. dollar relative to a basket of other currencies, is nearing a multi-week high in anticipation of additional policy tightening by the Federal Reserve. Investors appear confident that the Federal Reserve will maintain its aggressive posture for a longer period of time. Tuesday’s better US CPI news boosted the wagers. In addition, numerous FOMC members emphasized the necessity to continue steadily increasing interest rates in order to achieve complete inflation control.
The markets were fast to price in a rate hike of at least 25 basis points at each of the next March and May FOMC decision meetings. Aside from this, the prevailing risk-off climate, as reflected by a generally softer tone on equities markets, provides extra benefits to the safe-haven dollar and imposes additional pressure on the risk-sensitive New Zealand dollar. Investors continue to be concerned about economic headwinds caused by the persistent increase in borrowing costs.
In addition, the recent yield curve inversion exacerbates fears of an oncoming recession and erodes the global risk attitude. This means that the path of least resistance for the NZD/USD pair is to the downside, and any effort at a recovery is more likely to be met by fresh selling at higher levels. Traders now await additional impetus from the US economic calendar, which includes the monthly Retail Sales and the Empire State Manufacturing Index.