NZD/USD drops to mid-0.6200s, over one-week low amid stronger USD/risk-off

• A combination of factors drag NZD/USD lower for the fourth successive day on Thursday.
• Hawkish Fed expectations and elevated US bond yields continue to underpin the greenback.
• Growing recession fears also benefit the safe-haven buck and weigh on the risk-sensitive kiwi.

The NZD/USD pair prolongs its recent sharp retracement slide from over a two-month high set last week and remains under heavy selling pressure for the fourth straight day on Thursday. The downward trajectory drags spot prices to a one-and-half-week low, around the 0.6250-0.6245 region during the early European session.

With the latest leg down, the NZD/USD pair has now reversed nearly 140 pips from the overnight swing high touched after the Reserve Bank of New Zealand (RBNZ) announced its policy decision. The RBNZ announced a fourth consecutive 50 bps rate hike on Wednesday and pointed to the need to bring forward the timing of further rate increases. This, however, was largely overshadowed by growing worries about a global economic downturn, which continues to act as a headwind for the risk-sensitive kiwi. Apart from this, a modest US dollar strength further contributes to the ongoing decline.

The USD hits a fresh monthly peak and remains well supported by speculations that the Fed would stick to its policy tightening path. The bets were reaffirmed by the recent hawkish remarks by several Fed officials and mostly upbeat US consumer spending data released on Wednesday. Moreover, the minutes of the July 26-27 FOMC meeting indicated that the US central bank would not consider pulling back on interest rate hikes until inflation came down substantially. The hawkish Fed expectations remain supportive of elevated US Treasury bond yields and continue to underpin the greenback.

Recession fears, meanwhile, tempers investors' appetite for perceived riskier assets. This is evident from a generally weaker tone around the equity markets, which is seen as another factor benefitting the safe-haven buck. The fundamental backdrop favours the USD bulls and supports prospects for a further near-term depreciating move for the NZD/USD pair. Traders now look forward to the US economic docket - featuring the release of the Philly Fed Manufacturing Index, Weekly Initial Jobless Claims and Existing Home Sales - for some impetus later during the early North American session.

Technical levels to watch