Struggles to stabilize above 0.6100

• NZD/USD faces pressure while attempting to extend recovery above 0.6120.
• Fed policymakers lacks evidence indicating that inflation will return to 2% on a sustainable basis.
• The kiwi asset oscillates around the 50% Fibo retracement.

The NZD/USD pair struggles to extend recovery above the immediate resistance of 0.6130 in the late European session. The kiwi asset faces pressures as the broader demand remains downbeat due to easing odds of early rate cut announcements by the Federal Reserve (Fed).

Investors turn uncertain about when the Fed will start reducing interest rates due to robust consumer spending in December, which has prompted fears of inflation remaining persistent ahead. Also, Fed policymakers are supporting interest rates at restrictive levels to confirm that inflation will return to the 2% target in a sustainable manner.

Meanwhile, investors shift focus towards the Fed’s monetary policy meeting, which is scheduled for late January. The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25-5.50% for the fourth time in a row. Investors will keep focus on how policymakers will position three rate cuts if they maintain a hawkish guidance for March monetary policy.

The demand for currencies, which are proxy to the Chinese economic prospects are facing significant pressure. The Chinese economy is struggling to deliver a decent post-Covid recovery. China’s annual Retail Sales for December were significantly lower due to weak domestic demand.

NZD/USD hovers near the 50% Fibonacci retracement (placed from 26 October 2023 low at 0.5772 to 26 December 2023 high at 0.6410) at 0.6090. The near-term appeal has turned bearish as the asset has slipped below the 50-period Exponential Moving Average (EMA), which is around 0.6160.

The Relative Strength Index (RSI) (14) has slipped below 40.00, indicating activation of a bearish momentum.

Fresh downside could appeal if the asset drops below January 17 low at 0.6090, which will expose it towards 11 October 2023 high at 0.6056, followed by the psychological support of 0.6000.

In an alternate scenario, further recovery above the 38.2% Fibo retracement at 0.6164, which would drive the asset towards January 16 high at 0.6208 and January 15 high around 0.6250.

NZD/USD daily chart