NZD/USD faces barricades around 0.5870 as DXY recovers, Fed policy eyed

• NZD/USD has sensed selling pressure at around 0.5870 as the DXY has rebounded.
• Risk sentiment is turning averse as S&P500 futures have extended their morning losses.
• A slowdown in consumer spending has trimmed hawkish Fed bets.

The NZD/USD pair has witnessed a corrective move after facing hurdles around the critical resistance of 0.5870 in the early European session. The asset has failed to cross Thursday’s high decisively as the US dollar index (DXY) has rebounded after sensing buying interest around 110.30.

Meanwhile, risk sentiment is turning averse as S&P500 futures have extended their morning losses. Bleak growth projections presented by US tech companies are weighing pressure on the US 500-stock basket. The 10-year US Treasury yields have resurfaced firmly despite declining bets for a hawkish Federal Reserve (Fed). At the press time, the 10-year yields are trading at 3.95%, 0.29% higher than their prior release.

The CME FedWatch tool is displaying the odds of 75 basis points (bps) rate hike at 84.8%. A slowdown in consumer spending has triggered chances of exhaustion in inflationary pressures. For the third quarter, consumer spending expanded by 1.4% vs. a prior expansion of 2.0%. A decline in household demand may restrict further price growth for goods and services.

Going forward, investors will go busy with the monetary policy event by the Federal Reserve (Fed), which is scheduled for Wednesday.

On the NZ front, a significant decline in China’s GDP projections could weigh on kiwi bulls as New Zealand is a leading trading partner of China. Global institution International Monetary Fund (IMF) has slashed Gross Domestic Product (GDP) forecast for China, citing Covid-19 lockdowns and the real estate crisis as responsible for a decline in economic activities.

The latest review from IMF dictates that "Risks to the banking system from the real estate sector are rising because of substantial exposure." Projections for GDP have been trimmed to 3.2% vs. prior estimations of 4.4%.