NZD/USD struggles near multi-day low, below mid-0.5600s as traders await US NFP report

• NZD/USD drifts lower for the second straight day amid some follow-through USD buying.
• Aggressive Fed rate hike bets and elevated US bond yields act as a tailwind for the buck.
• Recession fears further weigh on the risk-sensitive kiwi ahead of the key US NFP report.

The NZD/USD pair remains under some selling pressure for the second straight day on Friday and extends the overnight sharp pullback from a nearly two-week high. The pair remains depressed through the early European session and is currently placed near a multi-day low, around the 0.5630-0.5635 region.

The US dollar buying remains unabated on the last day of the week amid growing acceptance that the Fed will continue to tighten its monetary policy at a faster pace to curb inflation. In fact, the markets have been pricing in another supersized 75 bps rate increase at the next FOMC meeting 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 greenback.

Apart from this, the prevalent risk-off environment lifts the safe-haven buck back closer to the weekly high and further contributes to driving flows away from the risk-sensitive kiwi. The market sentiment remains fragile amid concerns about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, the risk of a further escalation in the Russia-Ukraine conflict has been fueling recession fears. This, in turn, continues to temper investors' appetite for riskier assets.

The fundamental backdrop suggests that the path of least resistance for the NZD/USD pair is to the downside. Traders, however, seem reluctant to place aggressive bets and might prefer to move to the sidelines ahead of the closely-watched US monthly jobs data, due for release later during the early North American session. The popularly known NFP report will influence Fed rate hike expectations, which, in turn, will drive the USD in the near term and provide a fresh impetus to the major.

Technical levels to watch