• NZD/USD faded an intraday bullish spike to the very important 200-day SMA, around the 0.6900 mark.
• A dovish assessment of the RBNZ decision turned out to be a key factor that prompted fresh selling.
• The USD climbed to a near two-year high and also contributed to the ongoing downward trajectory.

The NZD/USD pair dropped to a near one-month low during the early European session and is now looking to extend the decline further below the 0.6800 round-figure mark.

The pair struggled to capitalize on its post-RBNZ bullish spike to the 0.6900 round-figure mark and witnessed a dramatic intraday turnaround from the very important 200-day SMA. The New Zealand central bank raised interest rates by a hefty 0.5% for the first time since 2000 to curb soaring inflation. This marked the fourth consecutive rate increase from the Reserve Bank of New Zealand, though was not accompanied by a change in the outlook. Apart from this, the underlying bullish sentiment surrounding the US dollar turned out to be a key factor that prompted aggressive selling around the NZD/USD pair.

Fed Governor Lael Brainard's comments on Tuesday reaffirmed market expectations for a more aggressive policy tightening by the Fed. In fact, Brainard said that the Fed will proceed with a series of interest rate hikes, as well as an effort to trim its balance sheet. This followed the release of the US consumer inflation figures, which showed no signs of easing in March and accelerated to levels last seen in 1981. This, along with a goodish rebound in the US Treasury bond yields, pushed the USD Index to its highest level since May 2020 and exerted heavy downward pressure on the NZD/USD pair.

Bulls seemed rather unimpressed by a generally positive tone around the equity markets, which tends to benefit perceived riskier currencies, including the kiwi. Apart from this, the emergence of fresh selling near a technically significant moving average and a subsequent break below the 0.6800 mark favours bearish traders. This supports prospects for an extension of the recent sharp pullback from the YTD peak and a slide towards the next relevant support near the 0.6745-0.6740 region. Traders now look to the US Producer Price Index for some impetus later during the early North American session.

Technical levels to watch