NZD/USD struggles below 0.5600 mark, lowest since March 2020 amid stronger USD

The NZD/USD pair nosedives to its lowest level since March 2020 during the first half of trading on Wednesday, albeit manages to recover a few pips during the early European session. The pair is currently hovering below the 0.5600 mark, still down nearly 2% for the day, and remains at the mercy of the US dollar price dynamics.

In fact, the USD Index, which measures the greenback's performance against a basket of currencies, hits a fresh two-decade high amid expectations for a more aggressive policy tightening by the Fed. The bets were reaffirmed by the overnight hawkish remarks by Fed officials, which, in turn, allows the yield on the benchmark 10-year US government bond to stand tall near its highest level since April 2020.

Apart from this, the prevalent risk-off mood provides an additional boost to the safe-haven greenback and contributes to driving flows away from the risk-sensitive kiwi. Investors remain worried that rapidly rising borrowing costs will lead to a deeper global economic downturn. Furthermore, the risk of a further escalation in the Russia-Ukraine conflict takes its toll on the global risk sentiment.

The fundamental backdrop suggests that the path of least resistance for the NZD/USD pair is to the downside. That said, the extremely oversold RSI (14) on short-term charts is holding back bearish traders from positioning for an extension of the depreciating move. This, in turn, seems to be the only factor offering some support to spot prices, at least for the time being.

Market participants now look forward to the release of the US Pending Home Sales data, due later during the early North American session. Apart from this, speeches by influential FOMC members, including Fed Chair Jerome Powell, and the US bond yields will influence the USD price dynamics. This, along with the broader risk sentiment, should allow traders to grab short-term opportunities around the NZD/USD pair.

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