The NZD/USD pair encounters difficulties in taking advantage of Monday’s movement and faces new selling pressure around the 0.6300 level. Spot prices retreat towards the lower end of the daily range and hover around the 0.6265-0.6270 area during the early European session.
On the first day of the new week, the US Dollar (USD) attracts some buying interest, halting its pullback from a two-month high reached on Friday. This development acts as a hindrance for the NZD/USD pair.
Concerns regarding a slowdown in global growth overshadow optimism about potential improvements in US-China relations, prompting investors to seek safety in the Greenback.
However, the upside potential for the USD appears limited due to a surprise breakdown in US debt ceiling negotiations and less hawkish remarks made by Federal Reserve (Fed) Chair Jerome Powell.
Last week, talks to raise the US government’s $31.4 trillion debt ceiling and prevent a historic default suddenly collapsed. Additionally, Powell stated that the need for further interest rate hikes remains uncertain, given the impact of previous hikes and recent tightening of bank credit.
Powell emphasized that the Fed will now evaluate decisions on a meeting-by-meeting basis, taking into account data and the evolving outlook, following a year of aggressive rate increases.
These factors prompt a decline in US Treasury bond yields, potentially restraining bullish sentiment for the USD and limiting downside pressure on the NZD/USD pair. Investors are also exercising caution and awaiting the key Reserve Bank of New Zealand (RBNZ) monetary policy meeting scheduled for Tuesday.
A recent survey revealed a decrease in first-quarter inflation expectations from 3.30% to 2.79%, leading investors to adjust their expectations for further rate hikes. This anticipation sets the stage for a potentially dovish shift, favoring bearish traders.
Market attention will subsequently shift to the release of flash PMI figures from the US on Tuesday, followed by the FOMC meeting minutes on Wednesday. Meanwhile, focus remains on a crucial meeting between President Joe Biden and House Republican Speaker Kevin McCarthy to discuss the debt ceiling.
In addition, US bond yields and overall risk sentiment will impact the dynamics of the USD, providing momentum for the NZD/USD pair.
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