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NZD/USD Maintains Modest Recovery Gains Above 0.5900; Upside Potential Appears Constrained
NZD/USD attracts some offers during the Asian session as USD price action remains subdued. The odds of one additional Fed rate hike in 2023 favour USD bulls and should limit the major currency. China's economic difficulties warrant additional caution before confirming a pair's bottom.
The NZD/USD pair continues to demonstrate resiliency below the 0.5900 level and draws some purchasing interest during Monday's Asian session. Spot prices are methodically climbing to the region between 0.5920 and 0.5925 and, for the time being, appear to have ended a two-day losing streak to the lowest level since November 2022, which was reached on Friday, although any meaningful appreciation move remains elusive.
The US Dollar (USD) begins the week on a subdued note and consolidates its recent gains to a nearly three-week high, prompting traders to reduce their bearish wagers on the NZD/USD currency pair. In the meantime, the near-term bias continues to favour USD investors in light of rising expectations for one more 25 basis point (bps) rate hike by the Federal Reserve (Fed) in 2023. Fed Chair Jerome Powell's hawkish remarks at the Jackson Hole Symposium on Friday reaffirmed the wagers.
In fact, Powell stated that the US central bank may need to raise interest rates further in order to reduce inflation, and he added that policymakers would proceed cautiously when deciding whether to tighten further or maintain the current policy rate. This, in turn, continues to support elevated US Treasury bond yields and suggests that the dollar's path of least resistance is to the upside. Aside from this, China's economic difficulties should limit gains for antipodean currencies, including the New Zealand dollar.
Therefore, it is prudent to wait for significant follow-through buying before confirming that the NZD/USD pair has reached a near-term bottom and positioning for further gains. In the absence of pertinent market-moving economic data on Monday, bearish traders should proceed with caution in light of repeated failures to find acceptance below the 0.5900 round figure. Nevertheless, the attempted intraday recovery may still be viewed as a selling opportunity and runs the risk of rapidly fizzling out.
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