New Zealand Dollar remains depressed around 0.5650, near June lows vs bullish USD

The New Zealand Dollar (NZD) continued its downward trend, trading near six-year lows against the US Dollar (USD) on Friday, as investors remained cautious amid a bullish USD outlook. The NZD/USD pair had slipped to around 0.5650 during the Asian session, flirting with its lowest point since late June. The US Dollar Index (DXY) reached a near two-month high due to expectations of further Federal Reserve (Fed) rate hikes and higher US bond yields, which are viewed as positive for the USD.

Traders priced in over a 65% chance of another Fed rate increase in October, following the expected 25 basis points hike earlier this month. Rising geopolitical tensions, particularly the uncertainty surrounding the US-Iran conflict, further bolstered the safe-haven appeal of the USD. Despite a hawkish stance from the Fed, the NZD's recovery prospects are limited, as any upward movement is likely to face resistance near the 0.5700 mark.

The US Treasury Secretary indicated that the US-China trade truce would be extended until January 10, but this development did not significantly boost the NZD. Traders are now looking to US macro data and Fed speeches for further impetus in the North American session. The NZD/USD pair could potentially extend its decline towards the year-to-date low of 0.5625, first observed in June.