NZD/USD rebounds from multi-week low, jumps back closer to 0.6100 mark

• NZD/USD stages a modest bounce from a multi-week low, though the upside seems limited.
• The divergent RBNZ-Fed policy outlook should continue to act as a headwind for the major.
• The worsening US-China relations might also contribute to capping the upside for the Kiwi.

The NZD/USD pair recovers a few pips from a nearly three-week low touched during the Asian session on Thursday and now trades just below the 0.6100 round-figure mark. The fundamental backdrop, however, remains tilted in favour of bearish traders and warrants some caution before positioning for any meaningful upside.

The New Zealand Dollar (NZD) has been one of the worst-performing G10 currencies in the past 24 hours in the wake of the diverging monetary policy outlooks between the Reserve Bank of New Zealand (RBNZ) and the Federal Reserve (Fed). It is worth mentioning that the RBNZ, after raising rates by 25 bps to 5.5% or the highest in more than 14 years in May, signalled that it was done with its most aggressive hiking cycle since 1999. The RBNZ also sees rates peaking at the current level, before rate cuts commence from the third quarter of next year.

In contrast, the Fed signalled earlier this month that borrowing costs may still need to rise as much as 50 bps by the end of this year. The outlook was reinforced by Fed Chair Jerome Powell on Wednesday, reiterating that two rate increases are likely this year. Speaking at a European Central Bank (ECB) conference, Powell did not rule out the possibility of a rate hike at the next FOMC policy meeting on July 25-26 and said that he does not see inflation coming down to the Fed's 2% target until 2025. This, in turn, continues to underpin the US Dollar (USD).

Furthermore, reports that the US is considering new restrictions on exports of artificial intelligence chips to China fuel concerns about deteriorating relations between the world's two largest economies. This might turn out to be another factor weighing on antipodean currencies, including the Kiwi, and keep a lid on the NZD/USD pair. Market participants now look to the US economic docket - featuring the final Q1 GDP print, the Weekly Initial Jobless Claims and Pending Home Sales - for a fresh impetus later during the North American session.

Technical levels to watch