- NZD/USD drops to a multi-week low on Monday amid relentless USD buying interest.
- Bets for more aggressive Fed rate hikes, elevated US bond yields underpin the USD.
- Technicals look weak and risk-off mood benefits the haven buck whilst weighing on the kiwi.
The NZD/USD pair remains under some selling pressure for the second straight day on Monday and drops to its lowest level since mid-July. The pair keeps depressed through the early European session, with bears now awaiting a sustained break below the 0.6100 round-figure mark.
The US dollar builds on Friday's strong intraday rally led by Fed Chair Jerome Powell's hawkish remarks and turns out to be a key factor exerting downward pressure on the NZD/USD pair. During his speech at the Jackson Hole Symposium squashed hopes of a dovish pivot and signalled that interest rates would be kept higher for longer to bring down soaring inflation.
Investors were quick to react and are now pricing in a greater chance of a supersized 75 bps Fed rate hike at the September meeting. A further rise in the US Treasury bond yields reinforces expectations. This, along with with the risk-off mood, pushes the safe-haven buck to a fresh 20-year high and contributes to driving flows away from the risk-sensitive kiwi.
With the latest leg down, the NZD/USD pair has dropped around 170 pips from last week's swing high and looks vulnerable. A bearish death cross pattern has completed on the weekly chart after the 50-week SMA crossed below the 200-week SMA. The pair has also formed a bearish two bar reversal pattern on the weeklies after a long green candle was followed by last week's long red down candle of a smilar length – in fact it was longer, creating a bearish engulfing pattern to boot. That said, it may be prudent to wait for some follow-through selling below the 0.6100 mark before positioning for any further downside back towards testing the YTD low, around the 0.6060 region, touched in July.
There isn't any major market-moving economic data due for release from the US, leaving the NZD/USD pair at the mercy of the USD price dynamics. Meanwhile, elevated US bond yields and a weaker risk tone favour the USD bulls. This, in turn, suggest that the path of least resistance for the major is to the downside and attempted recovery might be seen as a selling opportunity.