NZD/USD Price Analysis: Declines to 20-DEMA as US Dollar strengthens

• NZD/USD slides further to 0.6130 as the Fed’s hawkish outlook dampens the market mood.
• The Fed signaled one rate cut this year amid uncertainty over the inflation outlook.
• NZD/USD fails to deliver an Inverted H&S breakout.

The NZD/USD pair tumbles to near 0.6130 in Friday’s European session. The Kiwi asset faces an intense sell-off as the US Dollar (USD) strengthens due to the Federal Reserve’s (Fed) hawkish interest rate outlook. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, jumps to 105.70, the highest level seen in a month.

The Fed advocated for only one rate cut this year against three projected in March as policymakers remain concerned over progress in disinflation due to strong labor market conditions. Fed’s hawkish narrative has also resulted in a dismal market mood. S&P 500 futures have posted significant losses in the London session, suggesting a sharp decline in investors’ risk appetite.

However, 10-year US Treasury yields fall further to 4.22% as market expectations for Fed rate cuts in September have been improved significantly due to soft United States consumer and producer inflation reports for May in which all components were lower than expectations.

Meanwhile, the New Zealand Dollar weakens after poor Business NZ Purchasing Managers’ Index (PMI) data for May, which showed that factory activity declined to 47.2 from the prior release of 48.8, downwardly revised from 48.9. A figure below the 50.0 threshold is itself considered as contraction.

NZD/USD faces selling pressure above 0.6200 while attempting to deliver a breakout of the Inverted Head and Shoulder (H&S) chart pattern formed on a daily timeframe. The neckline of the above-mentioned chart pattern is marked near 0.6215. The asset has declined slightly below the 20-day Exponential Moving Average (EMA) near 0.6130. A decisive break below the same would weaken its near-term outlook.

The 14-period Relative Strength Index (RSI) falls back into the 40.00-60.00 range, indicating that the upside momentum has faded.

Fresh downside would appear if the asset breaks below April 4 high around 0.6050 This would drag the asset towards the psychological support of 0.6000 and April 25 high at 0.5969.

On the contrary, a reversal move above June 12 high of 0.6222, which will expose the asset January 15 high near 0.6250, followed by January 12 high near 0.6280.

NZD/USD daily chart