NZDUSD remains depressed near daily low amid modest USD strength, softer risk tone

• NZDUSD meets with heavy supply on Wednesday amid a modest USD recovery.
• Elevated US bond yields and a softer risk tone revive demand for the greenback.
• Traders now look to Fedspeaks for some impetus ahead of the US CPI on Thursday.

The NZDUSD pair comes under fresh selling pressure on Wednesday and extends the previous day's rejection slide from the 0.6000 psychological mark, or the highest level since September 19. The pair maintains the heavily offered tone through the mid-European session and is currently placed near the lower end of its daily range, just above the 0.5900 round figure.

A combination of factors assists the US Dollar stage a modest recovery from a multi-week low touched on Tuesday, which, in turn, is seen as a key factor exerting downward pressure on the NZDUSD pair. Despite expectations for a less aggressive policy tightening by the Fed, bets for another 50-bps rate hike in December remain supportive of elevated US Treasury bond yields. This, along with a generally weaker tone around the equity markets, offers support to the safe-haven buck and contributes to driving flows away from the risk-sensitive Kiwi.

Against the backdrop of growing worries about a deeper economic downturn, the uncertainty over the results from the US mid-term elections tempers investors' appetite for riskier assets. In fact, the opposition Republicans remain favourites to win a majority In the House of Representatives. This could allow them to prevent any additional tax increases and limit government spending. Moreover, the race for the Senate remains too close to call. The pivotal battles in Arizona, Georgia, and Nevada could determine which party controls the chambers.

With the latest leg down, the NZDUSD pair, for now, seems to have stalled the post-NFP rally and remains at the mercy of the USD price dynamics in the absence of any relevant economic data. Traders, however, will take cues from speeches by New York Fed President John Williams and Richmond Fed President Thomas Barkin. This, along with the US bond yields and the broader risk sentiment, will drive the USD demand and provide some impetus to the NZDUSD pair. The focus, however, remains glued to the US consumer inflation figures, due on Thursday.

Technical levels to watch