• On Monday, the NZD/USD plunged to levels last seen on March 2020.
• Risk aversion is the game’s name, due to increased recession jitters, alongside UK’s tax cuts, adding to inflationary pressures.
• NZD/USD traders eye Durable Good Orders, New Home Sales, Consumer Confidence, and Fed Chief Jerome Powell.

On Monday, the NZD/USD plunged more than 1% or 107 pips, as risk aversion hit the markets, with global equities trading in the red, amidst growing concerns of a worldwide recession, following a week of 500 bps of tightening by central banks. Additionally, tax cuts in the UK added to the country’s inflationary pressures, despite the ongoing tightening cycle by the Bank of England (BoE). As the Asian Pacific session begins, the NZD/USD is trading at 0.5635, slightly down by 0.01%.

NZD/USD fell towards the 0.5420s on risk-off impulse

The lack of economic data kept investors leaning towards market sentiment and US dollar dynamics. Last week’s 75 bps by the Fed, and expectations of the Federal funds rate (FFR) to finish at around 4-4.4% levels, augmented appetite for the safe-haven US dollar. Consequently, US Treasury bond yields rose, with the short-end of the curve, namely 2s and 5s, breaching the 4% threshold, while the US 10-year T-bond yield climbed towards 3.93%.

In the meantime, the US Dollar Index refreshed two-decade highs at around 114.53, a headwind for the NZD/USD, which began trading on Monday at 0.5740 and reached a daily high of 0.5754 before plummeting toward the daily low at 0.5625.

Elsewhere, Fed officials crossed newswires on Monday. The Boston Fed President Susan Collins expressed that further tightening is needed to temper inflation and emphasized that the unemployment rate should rise to achieve the Fed goal. Echoing her comments was Cleveland’s Fed President Loretta Mester, alongside Atlanta’s Fed President Raphael Bostic

What to watch

On Tuesday, the US economic docket will feature Durable Goods Orders, Consumer Confidence, New Home Sales, and further Fed speaking, led by Chair Jerome Powell.

The New Zealand calendar is empty, leaving traders adrift to US dollar dynamics.

NZD/USD Key Technical Levels