NZD/USD flat-lines around 0.6100 mark, consolidates its recent fall to fresh YTD low

• NZD/USD languishes near its lowest level since November amid sustained USD buying.
• The USD remains pinned near a multi-month top amid bets for aggressive Fed rate hikes.
• The prevalent risk-off environment further acts as a headwind for the risk-sensitive Kiwi.

The NZD/USD pair seesaws between tepid gains/minor losses, around the 0.6100 mark through the early European session and consolidates its recent decline to the lowest level since November 17 touched earlier this Wednesday.

The US Dollar builds on the previous day's blowout rally led by more hawkish remarks by Federal Reserve Chair Jerome Powell and climbs to a fresh multi-month top, which, in turn, is seen acting as a headwind for the NZD/USD pair. Powell surprised investors and raised the possibility of larger rate hikes to tackle sticky inflation. In the prepared remarks for the semi-annual congressional testimony, Powell warned that interest rates might need to go up faster and higher than previously anticipated.

The markets were quick to react and started pricing in a greater chance of a 50 bps lift-off at the March FOMC policy meeting, which remains supportive of elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond is holding steady near the 4.0% threshold and the rate-sensitive two-year Treasury note stands tall near its highest level since 2007, which, along with a fresh wave of the global risk-aversion trade, continues to lend support to the safe-haven USD.

The market sentiment remains fragile amid worries about economic headwinds stemming from rapidly rising borrowing costs. Adding to this, fading optimism over a strong Chinese economic recovery, along with US-China tensions, temper investors' appetite for perceived riskier assets. This is evident from a sea of red across the equity markets, which further benefits the Greenback's status as the global reserve currency and contributes to capping any meaningful upside for the risk-sensitive Kiwi.

That said, the extremely oversold Relative Strength Index (RSI) on hourly charts helps limit losses for the NZD/USD pair, at least for the time being. Nevertheless, the fundamental backdrop seems tilted firmly in favour of bearish traders and suggests that the path of least resistance for spot prices is to the downside. Hence, any attempted recovery move is more likely to get sold into and runs the risk of fizzling out rather quickly. Investors look forward to the US macro data for a fresh impetus.

Wednesday's US economic docket features the release of the ADP report on private-sector employment and JOLTS Jobs Opening data later during the early North American session. This, along with the US bond yields and Powell's second day of testimony before the House Financial Services Committee, will drive the USD demand. Apart from this, the broader risk sentiment should influence the NZD/USD pair and allow traders to grab short-term opportunities.

Technical levels to watch