NZD/USD looks set to refresh two-year low around 0.5920 as DXY rebounds ahead of Fed

• NZD/USD fades corrective bounce off the lowest level since May 2020.
• PBOC inaction, downbeat RBA minutes contrast with hawkish Fed bets to favor Kiwi bears.
• Return of full markets amplify cautious mood ahead of the key central bank announcements.
• Short-term descending trend line, May 2020 low highlights 0.5920 as the key support.

NZD/USD takes offers to refresh intraday low around 0.5935 heading into Tuesday’s European session. In doing so, the Kiwi pair drops for the second consecutive day while fading the previous day’s bounce off the 28-month low marked on Monday.

The quote’s latest weakness could be linked to the broad US dollar rebound, as well as the market’s cautious mood ahead of the US Federal Reserve (Fed) monetary policy announcements. Additionally, fears surrounding China and Europe joining downbeat monetary policy meeting minutes from the Reserve Bank of Australia’s (RBA) and People’s Bank of China’s (PBOC) inaction seem to weigh on the NZD/USD prices.

RBA Minutes showed that the policymakers are well prepared for further rate hikes to tame inflation. However, the statements like, “Interest rates have increased quite quickly and were getting closer to normal settings,” seem to weigh on NZD/USD prices of late.

Also, the People’s Bank of China (PBOC) keeps the one-year and five-year Loan Prime Rate (LPR) unchanged at 3.65% and 4.30% respectively, which in turn poured cold water on the face of expectations of a rate cut and weigh on Kiwi prices.

Elsewhere, downbeat US housing numbers and multi-day low of the US inflation expectations, as per the breakeven inflation rate of the St. Louis Federal Reserve (FRED), seem to challenge the US dollar buyers.

Against this backdrop, the S&P 500 Futures fade the previous day’s bounce off a two-month low around 3,920 whereas the US 10-year and 2-year Treasury yields remain sidelined at the highest levels since April 2011 and October 2007 in that order.

Moving on, NZD/USD bears are likely to keep the reins ahead of the Fed’s verdict. However, the pre-event consolidation might allow the quote to pare recent losses.

Technical analysis

A four-month-old descending trend line joins May 2020 bottom to portray 0.5920 as a tough nut to crack for the NZD/USD bears.