NZD/USD remains depressed below mid-0.5800s, near its lowest level since March 2020

• NZD/USD edges lower on Friday and is pressured by a combination of factors.
• Bullish USD and the prevalent risk-off mood weigh on the risk-sensitive kiwi.
• Slightly overbought conditions turn out to be the only factor lending support.

The NZD/USD pair struggles to capitalize on the overnight bounce from the 0.5800 mark, or its lowest level since March 2020 and meets with a fresh supply on Friday. The pair remains on the defensive through the early European session and is currently trading around the 0.5835 region.

Following the previous day's intraday volatile swings, the US dollar regains some positive traction and remains pinned near a two-decade high. This turns out to be a key factor that continues to exert some pressure on the NZD/USD pair. The Fed on Wednesday struck a more hawkish stance and signalled that it will likely undertake more aggressive rate increases to cap inflation. This remains supportive of the ongoing move up in the US Treasury bond yields, which, in turn, is seen underpinning the greenback.

Furthermore, the prevalent risk-off environment offers additional support to the safe-haven buck and contributes to driving flows away from the risk-sensitive kiwi. The market sentiment remains fragile amid worries that rapidly rising borrowing costs will lead to a deeper global economic downturn. Adding to this, China's zero-covid policy and the risk of a further escalation in the Russia-Ukraine conflict have been fueling recession fears, tempering investors' appetite for perceived riskier assets.

That said, slightly oversold technical indicators on the daily chart hold back bearish traders from placing aggressive bets around the NZD/USD pair. Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the downside and any attempted recovery move might still be seen as a selling opportunity. Market participants now look forward to the flash US PMI prints for some impetus ahead of Fed Chair Jerome Powell's speech later during the US session.

Technical levels to watch