The NZD/USD pair dropped sharply to 0.6100 as hopes for a Fed rate cut diminished, weakening market sentiment. The Fed is expected to keep interest rates steady with a hawkish outlook, causing caution in the market. The Reserve Bank of New Zealand’s rate-cut expectations have been pushed beyond 2024 due to a slowdown in New Zealand’s disinflation progress.
The US Dollar strengthened after the US Nonfarm Payrolls report for May showed robust labor demand and strong wage growth, reducing expectations for a Fed monetary policy easing in September. The US Dollar Index rose to a monthly high near 105.45.
Investor uncertainty ahead of the US Consumer Price Index data for May and the Fed’s monetary policy decision on Wednesday has increased demand for the US Dollar. The market sentiment has turned risk-averse as investors expect the Fed to keep interest rates steady until they see evidence of sustainable price pressures returning to the desired rate of 2%.
On the Kiwi front, investors expect the Reserve Bank of New Zealand to maintain its key Official Cash Rate at current levels beyond 2024 due to the lack of progress in the disinflation process.
The NZD/USD pair faced selling pressure near a horizontal resistance level and dropped towards the 38.2% Fibonacci retracement support at 0.6076. The pair slipped below the 20-day Exponential Moving Average but found support at the 50-day EMA.
The RSI suggests that upside momentum has faded but the bullish bias remains. A move above the June 6 high at 0.6216 could drive the pair towards higher resistance levels. On the downside, breaking below the April 4 high at 0.6050 could lead to a drop towards psychological support at 0.6000.
Overall, the NZD/USD pair is facing downward pressure as the market awaits key economic data and the Fed’s monetary policy decision.