NZD/USD struggles near its lowest level since April 2020 as another big Fed rate hike looms

• NZD/USD drops to its lowest level since April 2020 amid sustained USD buying interest.
• Retreating US bond yields, the risk-on mood caps the buck and limits losses for the pair.
• Investors now seem to move to the sidelines and await the crucial FOMC policy decision.

The NZD/USD pair recovers a few pips from its lowest level since April 2020 touched in the last hour and is currently placed in neutral territory, around the 0.5885 region. That said, any meaningful recovery still seems elusive as investors gear up for another supersized rate hike by the Federal Reserve.

The stronger US CPI report released last week reaffirmed expectations that the USD central bank will continue to tighten its monetary policy at a faster pace. This remains supportive of a strong follow-through US dollar move up to a fresh 20-year peak, which, in turn, should continue to act as a headwind for the NZD/USD pair.

That said, a softer tone surrounding the US Treasury bond yields and a generally positive risk tone keep a lid on any further gains for the safe-haven greenback. Apart from this, slightly oversold conditions on short-term charts offer some support to the risk-sensitive kiwi and help limit losses for the NZD/USD pair.

Apart from this, the intraday bounce could further be attributed to some repositioning trade ahead of the highly-anticipated FOMC policy decision, scheduled to be announced later during the US session. The Fed is widely expected to stick to its aggressive policy tightening path and hike interest rates by at least 75 bps.

Apart from this, the focus will be on the updated economic projections and the dot plot. Furthermore, Fed Chair Jerome Powell's remarks at the post-meeting press conference will be looked upon for clues about future rate hikes. This, in turn, will influence the USD and provide a fresh directional impetus to the NZD/USD pair.

Technical levels to watch