NZD/USD seems vulnerable near 0.5900, lowest since November 2022 ahead of Fed’s Powell

• NZD/USD continues losing ground for the second straight day and hits a fresh YTD low.
• Bets for more Fed rate hikes continue to boost the USD and exert pressure on the pair.
• Spot prices show resilience below 0.5900 as traders await Fed Chair Powell’s speech.

The NZD/USD pair drifts lower for the second successive day on Friday and touches a fresh low since November 2022 during the early part of the European session. Spot prices, however, once again show some resilience below the 0.5900 mark and quickly recover a few pips in the last hour, though any meaningful upside remains elusive amid the underlying bullish tone around the US Dollar (USD).               

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, advances to a two-and-half-month top as traders continue to price in the possibility of further policy tightening by the Federal Reserve (Fed). The bets were reaffirmed by the overnight hawkish remarks by Fed officials, keeping the door open for one more 25 bps lift-off by the end of this year. The outlook, meanwhile, remains supportive of elevated US Treasury bond yields and continues to underpin the buck.

Apart from the view that the Fed will keep interest rates higher for longer, worries about a deeper global economic downturn further benefit the safe-haven Greenback and should contribute to capping the NZD/USD pair. Against the backdrop of the worsening economic conditions in China, a host of manufacturing surveys on Wednesday painted a grim picture of the health of economies across the globe and fueled recession fears. This should act as a headwind for the growth-sensitive Kiwi.

Traders, however, might refrain from placing fresh bearish bets around the NZD/USD pair and prefer to move to the sidelines ahead of Fed Chair Jerome Powell's highly-anticipated speech at the Jackson Hole Symposium. Investors will look for fresh cues about the Fed's future rate-hike path, which will play a key role in influencing the USD price dynamics and provide a fresh directional impetus to the major. Nevertheless, spot prices remain on track to register losses for the sixth straight week.

Technical levels to watch