NZD/USD drops to fresh daily low amid modest USD strength, holds above mid-0.6200s

• NZD/USD comes under some selling pressure after facing rejection near the 0.6300 mark on Tuesday.
• The USD stands tall near a two-month high and turns out to be a key factor dragging the pair lower.
• Traders now look to the US PMIs for some impetus ahead of the RBNZ policy meeting on Wednesday.

The NZD/USD pair continues with its struggle to find acceptance or build on its modest intraday gains beyond the 0.6300 mark and meets with a fresh supply on Tuesday. The selling picks up pace during the early European session and drags spot prices to a fresh daily low, around the 0.6265 region in the last hour.

A combination of factors push the US Dollar (USD) higher for the second straight day, back closer to a two-month high touched last Friday, which, in turn, is seen exerting some downward pressure on the NZD/USD pair. Despite the less hawkish remarks by Federal Reserve (Fed) Chair Jerome Powell, investors seem convinced that the US central bank is likely to continue hiking interest rates. The bets were lifted by the overnight comments by a slew of influential FOMC members, indicating that the US central bank will keep interest rates higher for longer. This, along with hopes that US politicians can come together on a debt ceiling deal, keeps the US Treasury bond yields elevated and continues to benefit the Greenback.

In fact, US President Joe Biden and House Speaker Kevin McCarthy ended discussions on Monday with no agreement on how to raise the US government's $31.4 trillion debt ceiling and will keep talking just 10 days before a possible default. This, in turn, allowed the yield on the benchmark 10-year US government bond to rise for a seventh straight day on Monday and register its longest winning streak since April 2022. Apart from this, worries over slowing global growth, particularly in China, further benefit the safe-haven buck and weigh on antipodean currencies, including the New Zealand Dollar (NZD). It is worth recalling that data released from China last week showed that the world's second-largest economy underperformed in April.

The NZD/USD pair, however, finds some support near the 200-hour Simple Moving Average (SMA), at least for the time being, as traders seem reluctant to place aggressive bets ahead of the Reserve Bank of New Zealand (RBNZ) meeting on Wednesday. The recent survey showed that inflation expectations for the first quarter eased to 2.79% from 3.30% and forced investors to scale back their bets for further rate hikes. This might have set the stage for a dovish shift and favour bearish traders. Heading into the key central bank event risk, traders on Tuesday will take cues from the flash US PMI prints.

The US economic docket also features the release of New Home Sales data and the Richmond Manufacturing Index, due later during the early North American session. This, along with the US bond yields, the US debt ceiling talks and the broader risk sentiment, might influence the USD price dynamics and provide some impetus to the NZD/USD pair.

Technical levels to watch