New Zealand Dollar remains subdued despite stronger Chinese PMI data

The New Zealand Dollar (NZD) experienced a dip against the US Dollar (USD) on Tuesday, as it traded near 0.5910 during the Asian session. This decline came after the NZD lost ground following a rise in China's Manufacturing Purchasing Managers' Index (PMI) to 51.5 in August, up from 50.9 in July, which exceeded market expectations of 50.9.

As trading partners, changes in China's economy can potentially affect the NZD. Brown Brothers Harriman strategists anticipate the Reserve Bank of New Zealand (RBNZ) will increase the Official Cash Rate (OCR) by 25 basis points to 2.75% in their next meeting, citing robust domestic economic conditions. These include inflation being above the target and a favorable outlook for domestic growth, indicating a possible further hike in the policy rate.

Meanwhile, the US Dollar (USD) gained strength due to hawkish expectations surrounding the Federal Reserve's policy stance. Investors have raised their expectations for a September rate hike, as indicated by the CME FedWatch Tool, which now shows a probability of over 66%. This significant shift from just a week ago when the likelihood was around 41% highlights the evolving Federal Reserve policy outlook.

Additionally, market participants are preparing for a busy economic calendar, including updates on US manufacturing and services sector activity, as well as the crucial Nonfarm Payrolls (NFP) report due on Friday. In terms of Fed policy, Fed Governor Scott Goolsbee delivered a moderately hawkish message with an FXS Speechtracker score of 6.2/10, slightly above the historical average of 6.1/10, indicating a continued focus on price stability despite inflation persisting longer than expected.

The sentiment remained largely hawkish, with the FXS Fed Sentiment Index falling by 0.41 points to 129.29, suggesting a slight softening in the perception of hawkishness while maintaining an elevated stance. Technical analysis of the NZD/USD pair shows it trading at 0.5910, above the 50-day EMA at 0.5866, suggesting mild bullishness.

However, the 9-day EMA at 0.5926 acts as a short-term resistance level, limiting upside potential for now. Should the pair break above this barrier, it could signal a more decisive recovery phase. Conversely, a daily close below the 50-day EMA may weaken the bullish tone and expose the pair to further downside.