NZD/USD remains depressed near 0.6200 mark amid softer risk tone, modest USD strength

• NZD/USD remains under some selling pressure for the second successive day on Monday.
• A weaker risk tone benefits the safe-haven greenback and weighs on the risk-sensitive Kiwi.
• Bets for less aggressive Fed rate hikes cap the USD upside and help limit losses for the pair.

The NZD/USD pair opens with a modest bearish gap on Monday and retreats further from its highest level since August 18 touched last week. The pair remains depressed through the early European session and is currently placed around the 0.6200 mark, just a few pips above the daily low.

The global risk sentiment took a hit amid a wave of protests in China over the government’s zero-COVID policy, which has been fueling concerns about a deeper economic downturn. The anti-risk flow extends some support to the safe-haven US Dollar and turns out to be a key factor dragging the NZD/USD pair lower for the second straight day. That said, the prospects for a less aggressive policy tightening by the Fed keep a lid on any further gains for the greenback and should help limit losses for the major.

It is worth recalling that the minutes of the November FOMC meeting released last Wednesday showed that most policymakers agreed it would soon be appropriate to slow the pace of rate hikes. Furthermore, the markets are now pricing in a greater chance of a relatively smaller 50 bps lift-off at the December FOMC meeting. This is reinforced by the ongoing downfall in the US Treasury bond yields, which should hold back the USD bulls from placing aggressive bets and lend some support to the NZD/USD pair.

Apart from this, an unprecedented 75 bps rate hike by the Reserve Bank of New Zealand (RBNZ) last week supports prospects for the emergence of some dip-buying around the NZD/USD pair. This, in turn, makes it prudent to wait for strong follow-through selling before positioning for a deeper pullback. In the absence of any relevant economic data, traders on Monday will take cues from speeches by influential FOMC members - St. Louis Fed President James Bullard and New York Fed President John Williams.

Technical levels to watch