NZD/USD Flirts With Daily Lows Near Mid-0.6100s; However, a Weaker USD Helps Limit Losses

The NZD/USD pair extends its overnight retreat from the 0.6200 level and remains under modest selling pressure throughout Wednesday's Asian session. In the last hour, spot prices have fallen to a new daily low and are currently trading in the mid-0.6100s, down 0.15 percent for the day.

Worries about deteriorating relations between the world's two largest economies are fueled by reports that the Biden administration is contemplating new restrictions on exports of artificial intelligence chips to China. This, in turn, is viewed as a key factor driving outflows from antipodean currencies, such as the New Zealand dollar. The US Dollar (USD), on the other hand, remains on the defensive for the third consecutive trading day, which could limit the downside for the NZD/USD pair, at least for now.

Premier Li Qiang of China told delegates at the World Economic Forum in Tianjin on Tuesday that the second quarter's economic growth will be higher than the first and is expected to attain the annual target of approximately 5%. Aside from this, the optimistic US macroeconomic data reduces concerns of a global economic recession and enhances investor confidence. This resulted in the overnight increase in US stock prices and exerts some downward pressure on the safe-haven Greenback.

Nevertheless, the Federal Reserve's (Fed) hawkish outlook may continue to act as a tailwind for the US dollar, bolstering the likelihood of a further intraday depreciation in the NZD/USD exchange rate. In fact, the Fed indicated earlier this month that borrowing costs may need to increase by as much as 50 basis points by the end of the year. In addition, the markets have fully priced in an additional 25 basis point hike at the July FOMC meeting, which continues to support US Treasury bond yields and the USD.

Fed Chair Jerome Powell's remarks during a panel discussion at the ECB Forum on Central Banking in Sintra on Wednesday and Thursday will remain the focal point. Investors will seek hints regarding the Fed's next rate-hike move, which will drive USD demand and provide significant impetus for the NZD/USD pair. The market will then focus on Friday's publication of the Fed's preferred inflation indicator, the US Core PCE Price Index.