NZD/USD sinks to fresh cycle lows ahead of the Fed

• NZD/USD bears move in as the Fed event draws near.
• US dollar rallies on fresh fuel into the Fed.

NZD/USD is ending the day down by some 1% after falling from 0.5975 to a low of 0.5885 having broken below key supports and now printing the lowest level since May 18 2009. The US dollar and yields are the driving force as the centerpiece of the calendar falls in on Wednesday's interest rate decision from the Federal Reserve. 

The US dollar was back to trading near a two-decade high on the day, as investors held firm on the expectation of another aggressive rate hike by the Fed. Rate futures traders are pricing in an 81% chance of a 75 basis point hike and a 19% probability of a 100 bps in tightening. This is supporting US yields and the DXY index while risk-off sentiment weighs on asset classes and proxy forex elsewhere. As such, the high beta bird is being shot down.

''We’ve been talking about the potential for USD strength for some time, and it’s now here with a vengeance; while we may see a few wobbles, the USD’s twin safe haven/high rates appeal is hard to deny despite us seeing fair value in the NZD well into the 0.60s,'' analysts at ANZ Bank argued.

''Technically, last night’s fall puts the NZD in a precarious spot; a break below 0.5825 will put it in “clear air” all the way down to the 2020 low of 0.5470.''