New Zealand Dollar firms on upbeat China PMI; snaps two day losing streak vs USD

• NZD/USD attracts some buyers on Wednesday amid a combination of supporting factors.
• China’s upbeat Services PMI and RBNZ’s hawkish shift benefit the Kiwi amid a softer USD.
• Geopolitical uncertainties could limit deeper USD losses and cap further gains for the pair.

The NZD/USD pair gains some positive traction following the better-than-expected release of China's Services PMI and climbs to the 0.5935 region during the Asian session on Wednesday. Spot prices, for now, seem to have snapped a two-day losing streak, though the upside potential seems limited amid persistent geopolitical uncertainties.

The latest data published by RatingDog showed that China's Services PMI climbed to 54.4 in May from 52.6 in the previous month, comfortably surpassing consensus estimates for a reading of 52.3. This also marks the fastest pace of expansion in three months, which, in turn, provides a modest lift to antipodean currencies, including the Kiwi. Apart from this, the Reserve Bank of New Zealand's (RBNZ) abrupt hawkish shift and a subdued US Dollar (USD) demand offer some support to the NZD/USD pair.

In fact, the RBNZ's forecast strongly projects a 25 basis points (bps) rate increase at the upcoming July 8 meeting and indicated that the OCR could reach roughly 2.85% by the end of this year, implying up to three rate hikes. In contrast, traders are currently pricing in just over a 50% chance that the US Federal Reserve (Fed) will raise borrowing costs once by the end of this year. This, along with mixed signals over US-Iran peace talks, undermines the USD and contributes to the NZD/USD pair's intraday gains.

In the latest developments surrounding the Middle East crisis, ABC News reported on Tuesday that US forces carried out self-defence strikes on Iran’s Qeshm Island and intercepted a series of Iranian missile and drone attacks targeting regional neighbors. Adding to this, US Secretary of State Marco Rubio said that Washington will not remove sanctions on Iran in exchange for a full reopening of the Strait of Hormuz, adding that any sanctions relief is conditioned on Iran giving up enriched uranium.

Meanwhile, US President Donald Trump announced the open-ended extension of the ceasefire and the continuation of a US blockade until negotiations are concluded one way or the other. This keeps geopolitical risk premium in play, which might continue to act as a tailwind for the USD and keep a lid on the NZD/USD pair. Traders now look forward to the release of the US ADP report on private-sector employment and ISM Services PMI for some impetus later during the North American session.