The NZD/USD pair has experienced a significant decline, falling to around 0.6130 during Friday’s European session. This drop is due to the strengthening of the US Dollar following the Federal Reserve’s hawkish interest rate outlook. The Fed has indicated that there will only be one rate cut this year, as opposed to the three that were projected earlier in March. This decision was made as policymakers remain concerned about the progress in disinflation, despite strong labor market conditions. The US Dollar Index (DXY) has risen to 105.70, reaching its highest level in a month.
This hawkish stance from the Fed has had a negative impact on the market mood, with significant losses observed in S&P 500 futures during the London session. This suggests a decrease in investors’ risk appetite. However, there has been an improvement in market expectations for Fed rate cuts in September, as a result of soft US consumer and producer inflation reports for May. All components of these reports came in lower than expectations, leading to a fall in 10-year US Treasury yields to 4.22%.
On the other hand, the New Zealand Dollar has weakened following poor Business NZ Purchasing Managers’ Index (PMI) data for May. The data showed a decline in factory activity to 47.2 from the previous release of 48.8, revised down from 48.9. Any figure below the 50.0 threshold indicates contraction in activity. NZD/USD is facing selling pressure above 0.6200 while trying to break out of an Inverted Head and Shoulder chart pattern on a daily timeframe. The neckline for this pattern is around 0.6215, with the asset hovering slightly below the 20-day Exponential Moving Average (EMA) near 0.6130.
The 14-period Relative Strength Index (RSI) indicates that the upside momentum has faded, falling back into the 40.00-60.00 range. A further downside could be expected if the asset breaks below the April 4 high of 0.6050, leading it towards the psychological support level of 0.6000 and the April 25 high at 0.5969. Alternatively, a reversal move above the June 12 high of 0.6222 could expose the asset to the January 15 high near 0.6250, followed by the January 12 high near 0.6280.
In conclusion, the NZD/USD pair has experienced a decline to 0.6130 due to the Fed’s hawkish outlook and the strengthening US Dollar. Market mood has been affected, with a decrease in risk appetite observed. The New Zealand Dollar has weakened following poor economic data, and the asset is facing selling pressure as it tries to break out of an Inverted Head and Shoulder chart pattern. Traders should keep an eye on key support and resistance levels for potential trading opportunities.
