NZD/USD Nears Daily Low in Mid-0.6100s, Losses Curbed by Weakening USD

The NZD/USD pair is edging towards its daily low in the mid-0.6100s, with a softer USD providing a buffer against further declines. Since the last session, the pair has seen a marked sell-off, with the drop originating from the 0.6200 mark. During Wednesday’s Asian market hours, the pair faced heightened selling pressure, leading it to reach a fresh daily low within the final hour of trading. At present, it’s hovering around the mid-0.6100s, indicating a 0.15% decrease compared to the previous day.

This slide is primarily attributed to speculation that the Biden administration might enforce new limitations on artificial intelligence chip exports to China. Such news has fueled worries about mounting tensions between the two superpowers, acting as a key driver diverting investments away from antipodean currencies such as the NZD. Concurrently, the USD has been on a downward trend for three successive days, potentially curbing additional losses for the NZD/USD pair in the short term.

During the World Economic Forum in Tianjin, China’s Premier Li Qiang offered reassurances, stating that China’s economic growth for the second quarter would outpace that of the first quarter, aiming to hit the yearly target of around 5%. This announcement, alongside positive US macroeconomic data, has helped to diminish concerns about a worldwide economic downturn, thereby lifting investor confidence. This revived optimism sparked an uptick in US equity markets overnight, exerting more downward pressure on the safe-haven USD.

Nevertheless, the Federal Reserve’s hawkish outlook could lend support to the USD. This could result in further intraday depreciation for the NZD/USD pair. Earlier this month, the Fed hinted that borrowing costs might need to increase by up to 50 basis points by year’s end. The markets have already priced in an additional 25 basis point hike at the July FOMC meeting, which continues to support US Treasury bond yields and the USD. Typically, a rise in interest rates fortifies the currency, as it offers higher returns on investments denominated in that currency.

Investors are gearing up to closely monitor Fed Chair Jerome Powell’s statements during an upcoming panel discussion at the ECB Forum on Central Banking in Sintra. This two-day event, scheduled for Wednesday and Thursday, serves as a crucial platform for central bankers, academics, and financial market players to exchange views on pressing economic issues. Powell’s insights will be under the microscope for any signs of the Federal Reserve’s future monetary policy direction. Any suggestion of prospective rate hikes by the Fed could significantly sway the USD’s performance.