NZD/USD recovers from Tuesday’s two-year lows under 0.6200 pre-US Retail Sales/Fed announcement

• NZD/USD has rebounded to close to 0.6250 after hitting its lowest since June 2020 on Tuesday. 
• Traders are focused on imminent US Retail Sales data and the upcoming Fed policy announcement. 

A bout of pre-US Retail Sales data and Fed policy announcement meeting weakness in the US dollar, that seems partially driven by a modest improvement in risk appetite as European equities rebound from Tuesday’s multi-month lows and global yields pare back from highs, is boosting NZD/USD in pre-US open Wednesday trade. The pair was last trading higher by about 0.7% in the 0.6250 region, a little over 50 pips higher versus Tuesday’s lows just under 0.6200, which was the lowest the pair has been since June 2020. 

Amid a lack of major macro updates, traders have their attention fixated on Wednesday’s economic calendar. US Retail Sales figures for May are due at 1230GMT and will be viewed in the context of rising US recession fears. Given that inflation in the US is so bad (as per last week’s inflation figures), bad data is unlikely to be interpreted as good for risk appetite as the Fed doesn’t have the room to be more dovish to support growth. 

That suggests that poor US data risks sending risk assets lower and NZD/USD potentially back towards 0.6200 once again. Speaking of the Fed, the US central bank is expected to lift interest rates by 75 bps to a target range of 1.5-1.75% from 0.75-1.0% in its policy announcement at 1800GMT. There will also be a lot of focus on fresh quarterly economic forecasts and rate guidance via a new dot-plot. Fed Chair Jerome Powell will then appear for his usual post-meeting press conference which will begin at 1830GMT.