NZD/USD Holds Modest Gains As China’s Caixin PMI Weakens

NZD/USD continued to move higher after rebounding from the 0.6050-0.6045 area (the lowest level since mid-May) the day before, attracting some follow-up buyers for the second consecutive day on Wednesday, but lacking bullish momentum, the spot price is still below the 50-day simple moving average (SMA) support breakout point.

The latest data released by Caixin showed that China’s Caixin Services Purchasing Managers Index fell to 51.2 in June from 54.0 in May, while the market expected 53.4. This has exacerbated concerns about the slowdown in the world’s second largest economy and is bearish for the Australian and New Zealand currencies, including the NZD. In addition, expectations that the New Zealand Reserve Bank will cut interest rates earlier than expected have further suppressed the trend of a significant rise in NZD/USD.

At the same time, the US dollar (USD) has struggled to gain significant momentum as more and more people believe that the Federal Reserve (Fed) will start a rate cut cycle later this year. Fed Chairman Powell delivered a relatively dovish speech on Tuesday, saying that the US economy has made significant progress in tackling inflation and is back on track to eliminate it, which reaffirmed the market’s bets. This, coupled with the retreat in US Treasury yields, which failed to attract US dollar bulls, should continue to boost NZD/USD.

Market participants now look forward to the US economic calendar, which includes the release of the ADP employment change in private sector employment and the ISM services purchasing managers’ index. However, the market focus will remain on the Fed minutes, which, along with Friday’s closely watched US non-farm payrolls report (NFP), will influence market expectations on the Fed’s path of rate cuts. This will therefore in turn drive demand for the US dollar in the short term and help determine the next directional move of the NZD/USD pair.

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