New Zealand Dollar tumbles as strong US PMI data lifts USD

The New Zealand Dollar (NZD) experienced a significant drop on Wednesday, decreasing by 1% and settling near 0.5670. This decline was triggered by robust US economic activity data, which bolstered the US Dollar (USD) and raised hopes for additional interest-rate hikes. The US Composite Purchasing Managers Index (PMI) increased to 58.4 in September from 56 in August, indicating a surge in private-sector activity.

S&P Global Market Intelligence's Chris Williamson highlighted that US business activity is expanding at its fastest rate in over five years. The survey results were compelling, with the Manufacturing PMI rising to 57, well above expectations, and the Services PMI increasing to 58.7, surpassing the forecast of 56. Both readings, above the 50 mark, suggest expanding activity and alleviate concerns about a slowing US economy.

The US Dollar Index (DXY), which gauges the Greenback against a basket of six major currencies, gained 0.54% and traded around 101.10, achieving a fresh two-month high. This USD strength exerts downward pressure on the NZD/USD pair. The escalating US activity also raises the likelihood of further Federal Reserve (Fed) rate hikes, as the central bank increased its policy rate by 25 basis points last week, setting the target range at 3.75%-4%.

Markets now forecast a 68% chance of another rate hike in October, up from around 55% the previous day. This shift in monetary policy expectations also bolsters US Treasury yields, with the ten-year yield hovering around 5.06%. The robust economic performance, elevated Treasury yields, and anticipations of higher US interest rates continue to favor the US Dollar, pressuring risk-sensitive currencies like the NZD and keeping NZD/USD under strong selling pressure.

In the one-hour chart, NZD/USD is at 0.5671, maintaining a bearish short-term outlook as the pair stays below the 100-period simple moving average (SMA) at 0.5720 and the 200-period SMA at 0.5743. The recent decline from the 0.5718 daily open has driven the price toward intraday lows, with the Relative Strength Index (14) at 29.15 nearing oversold levels, hinting that while downside momentum persists, a potential bounce-back is not entirely dismissed.

The immediate support level is identified at 0.5670, with a break exposing the next bearish target at 0.5626, where buying interest may attempt to halt the decline. Technical analysis, assisted by an AI tool, was conducted by Ghiles Guezout, a seasoned Market Analyst with expertise in stock market investments, trading, and cryptocurrencies.