NZD/USD finds cushion around 0.6220, downside seems favored amid China’s Covid concerns

• NZD/USD is aiming to build a cushion around 0.6220 after a gap-down open.
• China’s anti-Covid curbs protests have impacted commodity-linked currencies.
• This week, Fed Powell’s speech will be of utmost importance.

The NZD/USD pair has built a cushion around 0.6220 after a gap-down opening as China’s anti-Covid lockdown protests hammered commodity-linked currencies. The kiwi asset has been declining for the past week after failing to test the round-level hurdle of 0.6300.

Escalating civil risks in China as individuals have come on the roads, showing their denial against the no-tolerance Covid approach and dictatorship structure built by China’s leader Xi Jinping, has strengthened the risk-aversion theme in global markets. This has triggered a risk of economic growth and may add fuel to the already vulnerable real estate market. Soaring fears of civil risks could also lead to political instability that could dampen economic structure for a lengthy period.

It is worth noting that New Zealand is one of the leading trading partners of China and unrest in China could impact New Zealand Dollar

Meanwhile, the US Dollar Index (DXY) is enjoying liquidity from investors as safe-haven appeal has improved dramatically. The USD Index is hovering around 106.20 and is aiming for a volatility contraction as the downside is being supported by China’s anti-locking protests and the upside is capped by expectations of a halt in a bigger rate hike spell by the Federal Reserve (Fed).

S&P500 futures are facing immense heat from market participants amid a risk-off market mood. The 10-year US Treasury yields have dropped again to near 3.68% amid anxiety ahead of a speech from Fed chair Jerome Powell, which is due on Wednesday. The speech from Fed Chair might clear ambiguity on rumors over a halt in the current rate hike pace by the Fed.