NZD/USD Price Forecast: Bounces off two-month low; seems vulnerable near mid-0.5700s

NZD/USD recovers slightly from over a two-month low, touched earlier this Wednesday.
A modest USD profit-taking ahead of the Fed decision offers some support to the pair.
The bearish technical setup warrants some caution before positioning for further gains.

Haresh Menghani FXStreet

The NZD/USD pair bounces off an over two-month low, around the 0.5735 area touched earlier this Wednesday, though it lacks any follow-through buying. Spot prices currently trade just above mid-0.5700s, nearly unchanged for the day, as traders keenly await the highly anticipated FOMC policy decision, due later today.

Heading into the key central bank event, the US Dollar (USD) pulls back after retesting the two-week high as bulls opt to take some profits off the table, which acts as a tailwind for the NZD/USD pair. Meanwhile, oil-driven inflation risks underpin prospects for further Fed tightening and remain supportive of elevated US bond yields. This, along with escalating tensions in the Middle East, acts as a tailwind for the safe-haven greenback and caps the currency pair.

From a technical perspective, the NZD/USD pair maintains a bearish near-term tone below the 200-day Simple Moving Average (SMA) at 0.5855 and a dense Fibonacci retracement band clustered between 0.5765 and 0.5850. Moreover, the Moving Average Convergence Divergence (MACD) histogram remains negative and slightly stretched to the downside. However, the Relative Strength Index (RSI) is edging towards oversold conditions and hovering near 32.

Nevertheless, momentum indicators together hint that downside momentum persists, suggesting that the attempted recovery is more likely to be sold into and remain capped. Meanwhile, immediate resistance emerges at the 61.8% Fibo. retracement around 0.5765, followed by the 50.0% level at 0.5807. Further up, the 38.2% retracement at 0.5850 and the 200-day SMA at 0.5855 form a broader cap ahead of the 23.6% retracement at 0.5903.

On the downside, initial support is seen at the 78.6% Fibo. retracement near 0.5704, with a deeper floor coming in at the recent swing low around 0.5627, where sellers could be inclined to book profits if the decline extends.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

NZD/USD daily chart

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

How often does the Fed hold monetary policy meetings?

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

What is Quantitative Easing (QE) and how does it impact USD?

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

What is Quantitative Tightening (QT) and how does it impact the US Dollar?

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.

Author

Haresh Menghani

FXStreet

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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