NZD/USD weakens further below 0.5800 mark, eyes weekly low amid bullish USD

• NZD/USD turns lower for the second straight day amid the emergence of fresh USD buying.
• The Fed’s hawkish outlook pushes the US bond yields higher and underpins the greenback.
• A softer risk tone further benefits the safe-haven buck and weighs on the risk-sensitive kiwi.

The NZD/USD pair attracts some sellers near the 0.5835-0.5840 area on Thursday and turns lower for the second successive day. Spot prices slide below the 0.5800 mark during the early European session and seem poised to extend the overnight post-FOMC sharp pullback from the highest level since September 20.

The US dollar reverses an intraday dip and climbs to a one-and-half-week high in the last hour, which, in turn, is seen as a key factor exerting downward pressure on the NZD/USD pair. The US central bank on Wednesday hinted at a possible policy change in the future, though Fed Chair Jerome Powell dashed hopes for a dovish pivot. In fact, Powell said that it was premature to discuss a pause in the rate-hiking cycle and that the terminal rate will still be higher than anticipated.

Powell's hawkish remarks suggest that the Fed will continue raising interest rates to combat inflation. This is reinforced by a fresh leg up in the US Treasury bond yields, which continues to underpin the greenback. Moreover, a softer risk tone offers additional support to the safe-haven buck and weighs on the risk-sensitive kiwi. The market sentiment remains fragile amid worries about economic headwinds stemming from rapidly rising borrowing costs and China's zero-COVID policy.

The fundamental backdrop seems tilted firmly in favour of the USD bulls and suggests that the path of least resistance for the NZD/USD pair is to the downside. Some follow-through selling below the weekly low, around the 0.5775 region, will reaffirm the negative bias and pave the way for a further near-term depreciating move. Market participants now look forward to the US ISM Services PMI for some impetus later during the early North American session ahead of the NFP report on Friday.

Technical levels to watch