NZD/USD Drops As Traders Eye RBNZ Rate Decision

The NZD/USD pair drops from last week’s highs around 0.6468 on risk aversion. China’s economic slowdown looming and bleak NY Fed Empire State Index underpin the US dollar.

The Reserve Bank of New Zealand is expected to hike rates by 50 bps on Wednesday. The NZD/USD snaps five days of gains and tumbles from around last week’s highs due to a mixed sentiment, spurred by weak Chinese economic data, alongside a dismal NY Fed Empire State Manufacturing Index, which slightly weakened the greenback.

At the time of writing, the NZD/USD is trading at 0.6369, after hitting a daily high at 0.6456, before nosediving towards the day’s lows at 0.6355, as traders sought safety ahead of the release of FOMC’s minutes on Wednesday.

US equities are treading high, lifted by big tech companies. In the FX space, safe-haven peers are in control after China’s Industrial Production and Retail Sales data missed estimates. The PBoC reacted to the figures, slashing rates on its 1-year MLF from 2.85% to 2.75%, on growing concerns that the country will miss its 5% target by year’s end.

In the meantime, earlier in the US session, the NY Empire State Manufacturing Index for August got into contractionary territory, at -31.3 from 5 estimates, causing a hiccup in the US Dollar Index, which ticked lower to 106.000, before resuming its rally towards 106.405, up 0.69%.

The NZD/USD outlook is tilted to the downside. However, with the RBNZ monetary policy looming and traders expecting a 50 bps increase, it would cap kiwi’s falls towards lower levels. For NZD/USD buyers is crucial to hold the exchange rate above 0.6395; if not, a fall towards August 1 daily high-turned-support at 0.6350 before opening the door for further losses.

On the US front, the economic calendar will feature the Federal Reserve Open Committee (FOMC) minutes, US Housing data, Initial Jobless Claims, the Conference Board Leading index, and Fed speakers.