NZD/USD struggles near weekly low around mid-0.6200s, bulls trying to defend 200 DMA

• NZD/USD drifts lower for the second successive day and dives to over a one-week low on Friday.
• Worries about a global economic slowdown continue to weigh heavily on the risk-sensitive Kiwi.
• A modest USD downtick lends support, though the fundamental backdrop favours bearish traders.

The NZD/USD pair extends the previous day's sharp retracement slide from the 0.6385 region, or a nearly three-month high and remains under heavy selling pressure for the second successive day on Friday. The pair drops to over a one-week low during the early European session, albeit shows some resilience below a technically significant 200-day Simple Moving Average (SMA) and currently trades around the 0.6260-0.6250 area, still down over 0.60% for the day.

The mixed Chinese inflation data and a weaker US labor market report released on Thursday raised concerns about a global economic slowdown, which, in turn, is seen as a key factor driving flows away from the risk-sensitive Kiwi. That said, a modest uptick in the US equity futures and a softer US Dollar hold back traders from placing fresh bearish bets around the NZD/USD pair. Apart from this, expectations for further rate hikes by the Reserve Bank of New Zealand (RBNZ) lend some support to the major, at least for the time being.

The USD downtick, meanwhile, is likely to remain cushioned amid the uncertainty over the Federal Reserve's (Fed) next policy move. The US CPI report released on Wednesday pointed to further signs of easing inflationary pressures and should allow the US central bank to pause its year-long rate-hiking cycle. Investors, however, remain divided over the possibility of a rate cut later this year. This, in turn, acts as a tailwind for the US Treasury bond yields, which should limit the USD losses and cap any intraday recovery for the NZD/USD pair.

The aforementioned fundamental backdrop supports prospects for a further near-term depreciating move, though traders need to wait for a break and acceptance below the 200 DMA is needed before placing fresh bearish bets. Market participants now look to the release of the Preliminary Michigan Consumer Sentiment Index from the US later during the early North American session. This, along with the broader risk sentiment and the US bond yields, will influence the USD price dynamics and provide some impetus to the NZD/USD pair.

Technical levels to watch