NZD/USD retreats from two-month high, slides to 0.6130 area ahead of FOMC minutes

NZD/USD struggles to capitalize on its modest intraday gains to over a two-month high.
A softer risk tone pushes the USD away from a multi-month low and exerts pressure.
Dovish Fed expectations might cap the USD recovery and help limit losses for the major.

Haresh Menghani FXStreet

The NZD/USD pair attracts some sellers following an intraday move up to the 0.6160-0.6165 region, or over a two-month peak and extends its steady descent through the early European session on Wednesday. Spot prices drop to a fresh daily low, around the 0.6130 area in the last hour and for now, seem to have snapped a three-day winning streak amid a modest US Dollar (USD) uptick.

A slight deterioration in the global risk sentiment – as depicted by a weaker tone around the equity markets – is seen benefiting the safe-haven Greenback and driving flows away from the perceived riskier Kiwi. Apart from this, the intraday USD recovery from its lowest level since January could further be attributed to some short-covering ahead of the July FOMC meeting minutes, due for release later today. This, along with Federal Reserve (Fed) Chair Jerome Powell's speech at the Jackson Hole Symposium, will play a key role in determining the next leg of a directional move for the buck.

Ahead of the key event risks, firming expectations that the US central bank will start its rate-cutting cycle in September keep the US Treasury bond depressed and might hold back the USD bulls from placing aggressive bets. Furthermore, hopes for additional economic stimulus from China's government might continue to lend support to antipodean currencies, including the New Zealand Dollar (NZD). This makes it prudent to wait for strong follow-through selling before confirming that the NZD/USD pair has already topped out in the near term and positioning for any meaningful corrective decline.

Even from a technical perspective, this week's sustained breakout through the very important 200-day Simple Moving Average (SMA) and the subsequent move up favors bullish traders. This, in turn, suggests that any further slide could be seen as a buying opportunity and is more likely to remain cushioned.

Economic Indicator

FOMC Minutes

FOMC stands for The Federal Open Market Committee that organizes 8 meetings in a year and reviews economic and financial conditions, determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth. FOMC Minutes are released by the Board of Governors of the Federal Reserve and are a clear guide to the future US interest rate policy.

Why it matters to traders?

Minutes of the Federal Open Market Committee (FOMC) is usually published three weeks after the day of the policy decision. Investors look for clues regarding the policy outlook in this publication alongside the vote split. A bullish tone is likely to provide a boost to the greenback while a dovish stance is seen as USD-negative. It needs to be noted that the market reaction to FOMC Minutes could be delayed as news outlets don’t have access to the publication before the release, unlike the FOMC’s Policy Statement.

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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