The NZD/USD pair encountered selling pressure during the European session as it struggled to extend its recovery beyond the immediate resistance level of 0.6070. The Kiwi asset found itself on the backfoot amidst a downbeat market mood, prompting investors to seek refuge in safe-haven assets.
The US Dollar Index (DXY) underwent a mild corrective move following a significant rally near 104.60. The growing appeal for the US Dollar is attributed to diminishing prospects of aggressive rate cuts by the Federal Reserve (Fed), as indicated by comments from Minneapolis Federal Reserve Bank President Neel Kashkari. Kashkari stated on Monday that lower recession risks have provided policymakers with ample time to reassess the outlook on interest rates.
Investor attention is now focused on the upcoming release of Q4 Employment data in New Zealand, scheduled for Wednesday. Projections anticipate a rise in the Unemployment Rate from 3.69% to 4.2%. The Labor Cost Index, reflecting wage growth momentum, is expected to maintain a steady pace of 0.8%. The complex decision-making context for Reserve Bank of New Zealand (RBNZ) policymakers involves balancing higher inflation against deteriorating labor market conditions.
The NZD/USD pair experienced a significant decline following a channel breakdown on the daily timeframe. The overall outlook for the Kiwi asset remains bearish, trading below the 200-day Exponential Moving Average (EMA) at 0.6112. Furthermore, the asset has slipped below the 50% Fibonacci retracement level (drawn from the October 26 low at 0.5772 to the December 26 high near 0.6410) at 0.6090.
The 14-period Relative Strength Index (RSI) has entered the bearish range of 20.00-40.00, signaling potential further downside.
Should the asset drop below the immediate support level of 0.6050, it could pave the way for a decline towards the June 8 low at 0.6026, followed by the psychological support at 0.6000.
Conversely, a recovery above the January 24 high at 0.6150 would position the asset for further gains towards the January 31 high at 0.6075 and the January 16 high at 0.6208.
