NZD/USD faces barricades around 0.6350 as risk-on impulse retreats, USD Index recovers

• NZD/USD has faced hurdles while reclaiming the immediate hurdle of 0.6350.
• A rebound in the risk-aversion theme has dented demand for risk-sensitive assets.
• Investors are expecting a higher interest rate peak by the Fed to contain price pressures.

The NZD/USD pair has sensed selling pressure while reclaiming the critical hurdle of 0.6350 in the Asian session. Earlier, the Kiwi asset attempted a recovery after dropping to near the round-level support of 0.6300. It seems that the risk aversion theme has regained traction and risk-perceived assets are facing the heat again.

It would be early to call for a fresh downside for now as the asset is expected to turn sideways amid the unavailability of a potential trigger. The US Dollar Index (DXY) has recovered after correcting to near 105.00. The USD Index is hovering around 105.30 and is awaiting a fresh trigger for further guidance.

S&P500 futures bulls are putting efforts into recovering Monday’s losses, however, renewed fears of a higher interest rate peak by the Federal Reserve (Fed) are capping the recovery. Meanwhile, the returns on US Treasury bonds are facing pressure in recovering their morning losses. The 10-year US Treasury yields are hovering marginally below 3.59%.

The release of the stronger US ISM Services PMI data on Monday has created havoc in the market. Federal Reserve (Fed) policymakers are working hard to spurt a slowdown in the economy so that eased demand could weigh pressure on firmer inflation. But a stellar recovery in the service sector has pushed all efforts into vain. The odds of a deceleration in an interest rate hike by the Fed are still solid but investors are expecting a higher interest rate peak to curtail inflationary pressures.

On the New Zealand front, investors awaiting China’s Consumer Price Index (CPI) data, which will release on Friday. The annual CPI is expected to drop vigorously to 1.0% from the prior release of 2.1%. This could force the People’s Bank of China (PBOC) to ease policy further. It is worth noting that New Zealand is one of the leading trading partners of China and monetary easing in China will strengthen New Zealand Dollar.