NZD/USD corrects further from two-week top, drops to 0.5700 mark or fresh daily low

• NZD/USD retreats from a nearly two-week high set earlier this Thursday amid fresh USD buying.
• Bets for more aggressive Fed rate hikes and elevated US bond yields continue to boost the buck.
• Recession fears weigh on investors’ sentiment and also exert pressure on the risk-sensitive kiwi.

The NZD/USD pair struggles to find acceptance above the 0.5800 mark for the second successive day and retreats sharply from a nearly two-week high touched earlier this Thursday. The steady intraday slide extends through the mid-European session and drags spot prices to a fresh daily low, with bears eyeing a sustained break below the 0.5700 round figure.

A combination of factors helps revive the US dollar demand, which, in turn, is exerting some downward pressure on the NZD/USD pair. Investors seem convinced that the Fed will stick to its aggressive policy tightening path to tame inflation and have been pricing in another supersized 75 bps rate increase in November. The bets were reaffirmed by the recent hawkish comments by several Fed officials, which remain supportive of elevated US Treasury bond yields and continue to act as a tailwind for the USD.

Apart from this, the prevalent risk-off environment provides an additional boost to the safe-haven buck and contributes to driving flows away from the risk-sensitive kiwi. Investors remain concerned that rapidly rising borrowing costs will lead to a deeper global economic downturn. Furthermore, the risk of a further escalation in the Russia-Ukraine conflict takes its toll on the risk sentiment. This, in turn, favours bearish traders and suggests that the path of least resistance for the NZD/USD pair is to the downside.

Market participants, however, might refrain from positioning for deeper losses and prefer to move to the sidelines ahead of the closely-watched US monthly jobs data, due on Friday. The popularly known NFP report will influence Fed rate hike expectations and play a key role in driving the USD in the near term. In the meantime, Thursday's release of the US Weekly Initial Jobless Claims, along with speeches by FOMC members and broader market risk sentiment, could provide some impetus to the NZD/USD pair.

Technical levels to watch