NZD/USD consolidates around 0.6165-70 area/200-hour SMA as traders await Powell’s testimony

• NZD/USD remains confined in a narrow trading band through the Asian session on Wednesday.
• A modest USD strength, along with economic woes, act as a headwind for the risk-sensitive Kiwi.
• Investors now look to Fed Chair Jerome Powell’s testimony before placing fresh directional bets.

The NZD/USD pair struggles to capitalize on the overnight bounce from the 0.6135-0.6130 area or a one-week low and oscillates in a narrow band through the Asian session on Wednesday. Spot prices currently trade around the 0.6165-0.6170 region, nearly unchanged for the day, with bulls awaiting sustained strength beyond the 200-hour Simple Moving Average (SMA) before positioning for any meaningful intraday appreciating move.

The US Dollar (USD) attracts some dip-buying following the previous day's modest pullback from the 50-day SMA and is seen as a key factor acting as a headwind for the NZD/USD pair. The Federal Reserve (Fed) last week signalled that borrowing costs may still need to rise as much as 50 bps by the end of this year and continues to lend some support to the Greenback. Apart from this, worries about a global economic downturn, particularly in China, further benefit the safe-haven buck and contribute to capping the upside for the risk-sensitive Kiwi.

Investors, however, seem convinced that the US central bank is nearing the end of its year-long policy tightening cycle. This had led to the recent decline in the US Treasury bond yields, which is capping gains for the USD and helping limit the downside for the NZD/USD pair, at least for the time being. Traders also seem reluctant to place aggressive bets and now seem to have moved to the sidelines, awaiting Fed Chair Jerome Powell's two-day semi-annual congressional testimony, starting this Wednesday, before positioning for the next leg of a directional move.

Market participants will closely scrutinize Powell's comments for fresh clues about the Fed's future rate-hike path. This, along with speeches by a slew of influential FOMC members, will play a key role in driving the USD demand and provide some impetus to the NZD/USD pair later during the early North American session. That said, the Reserve Bank of New Zealand's (RBNZ) explicit signal that it was done with its most aggressive hiking cycle since 1999 favours bearish traders and suggests that the path of least resistance for spot prices is to the downside.

Technical levels to watch