NZD/USD slides back closer to YTD low, around 0.6230 area amid fresh USD buying

• NZD/USD failed to preserve its modest recovery gains amid the emergence of some USD dip-buying.
• Rebounding US bond yields, aggressive Fed rate hike bets continued acting as a tailwind for the buck.
• Extremely oversold conditions held back bears from placing aggressive bets amid the risk-on impulse.

The NZD/USD pair surrendered its modest intraday gains and dropped to the lower end of its daily trading range, around the 0.6230-0.6225 region during the early North American session.

The pair struggled to capitalize on its attempted recovery move from its lowest level since June 2020 touched earlier this Friday and met with a fresh supply near the 0.6260 region. The risk-on impulse in the markets, along with the prospects for a more aggressive policy tightening by the Fed, allowed the US Treasury bond yields to make a solid comeback. This, in turn, pushed the US dollar to a fresh two-decade high and exerted some downward pressure on the NZD/USD pair.

The markets seem convinced that the Fed would need to take more drastic action to bring inflation under control and are still pricing in a jumbo 75 bps rate hike in June. The bets were reaffirmed by Fed Chair Jerome Powell's comments on Thursday, pledging that the US central bank was prepared to do more to combat stubbornly high inflation. Moreover, investors remain concerned that China's zero-covid policy and the war in Ukraine would continue to push consumer prices higher.

Despite the aforementioned factors, traders seemed reluctant to place aggressive bearish bets around the NZD/USD pair amid extremely oversold conditions on short-term charts. Nevertheless, the major remains on track to post heavy losses for the second successive week and record its lowest weekly close since May 2020. Next on tap will be the release of the prelim US Michigan Consumer Sentiment Index, which might provide some impetus and allow traders to grab short-term opportunities.

Technical levels to watch