NZD/USD remains on the defensive, holds above 0.6200 mark ahead of FOMC minutes

• NZD/USD struggles near monthly low despite a hawkish RBNZ rate hike on Wednesday.
• The prospects for further policy tightening by the Fed underpins the USD and caps gains.
• Recession fears also benefit the buck and act as a headwind for the risk-sensitive Kiwi.
• Traders now await the release of the FOMC meeting minutes before placing fresh bets.

The NZD/USD pair struggles to capitalize on its modest intraday uptick and attracts fresh sellers in the vicinity of mid-0.6200s on Wednesday. The pair is currently placed just a few pips above the 0.6200 mark, or its lowest level since January 6 touched last Friday, and a technically significant 200-day Simple Moving Average (SMA).

The prospect of further policy tightening by the Fed keeps the US Dollar pinned near a multi-week top, which, in turn, is seen as a key factor acting as a headwind for the NZD/USD pair. In fact, the markets seem convinced that the US central bank will stick to its hawkish stance and have been pricing in at least a 25 bps lift-off at the next two FOMC meetings in March and May. The bets were further lifted by strong US PMI prints on Tuesday, which showed that business activity unexpectedly rebounded to an eight-month high in February.

This comes on the back of the upbeat US macro data, which pointed to an economy that remains resilient despite rising borrowing costs. Adding to this, the US CPI and PPI data released last week showed that inflation isn't coming down quite as fast as hoped. Moreover, several FOMC members, including Fed Chair Jerome Powell, recently stressed the need to keep lifting rates gradually to fully gain control of inflation. This remains supportive of elevated US Treasury bond yields, which, along with a softer risk tone, underpins the safe-haven buck.

The market sentiment remains fragile amid worries about an impending global recession. Apart from this, geopolitical tensions weigh on investors' sentiment and drive flows away from the risk-sensitive Kiwi. The aforementioned fundamental factors, to a larger extent, overshadow a hawkish rate hike from the Reserve Bank of New Zealand (RBNZ) earlier this Wednesday. This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the downside, though a convincing break below the 200-day SMA is needed to confirm the bearish outlook.

Technical levels to watch