NZD/USD drops to multi-day low, around mid-0.6200s amid notable USD demand/risk-off

The NZD/USD pair extended the previous day's rejection slide from the 0.6365-0.6370 resistance zone and witnessed heavy selling on Wednesday. The pair continued losing ground through the early European session and dropped to a multi-day low, around mid-0.6200s in the last hour.

The US dollar was back in demand amid growing acceptance that the Fed would stick to its aggressive policy tightening path and hike rates at a faster pace to combat stubbornly high inflation. In fact, the markets have been pricing in another 75 bps rate hike move at the next FOMC policy meeting in July. This, along with a fresh wave of the global risk-aversion trade, provided an additional lift to the safe-haven buck and exerted downward pressure on the risk-sensitive kiwi.

The market sentiment remains fragile amid doubts that major central banks could hike interest rates to curb soaring inflation without affecting global economic growth. This comes amid the global supply chain disruptions caused by the Russia-Ukraine war and the latest COVID-19 outbreak in China, which continued fueling recession fears. The worsening economic outlook took its toll on the global risk sentiment, which was evident from a fresh leg down in the equity markets.

With the latest leg down, the NZD/USD pair seems to have confirmed a near-term bearish break through a three-day-old trading range and remains vulnerable to decline further. Hence, a subsequent slide back towards testing sub-0.6200 levels, or the YTD low touched earlier this month, looks like a distinct possibility. Market participants now turn their focus to Fed Chair Jerome Powell's testimony before the Senate Banking Committee later during the North American session.

Technical levels to watch