New Zealand Dollar remains subdued despite stronger Chinese PMI data

• NZD remains weak despite China's August RatingDog Manufacturing PMI rising to 51.5, beating market expectations.
• The US Dollar rebounds as hawkish Federal Reserve sentiment fuels expectations of upcoming interest rate hikes.
• CME FedWatch Tool suggests that markets now price in a 66% chance of a September Fed rate hike.

NZD/USD depreciates after posting minor gains in the previous day, trading around 0.5910 during the Asian hours on Tuesday. The pair loses ground as the New Zealand Dollar (NZD) holds losses after China’s RatingDog Manufacturing Purchasing Managers’ Index (PMI) climbed to 51.5 in August from 50.9 in July. The market forecast was 50.9. China and New Zealand are close trading partners, so any change in the Chinese economy could impact the NZD.

NZD outlook steadies as RBNZ seen hiking again on firm inflation

Strategists at Brown Brothers Harriman note that the “RBNZ is widely expected to deliver a back-to-back 25bps Official Cash Rate (OCR) hike to 2.75% (Wednesday),” pointing to a supportive domestic backdrop. They highlight that “New Zealand headline inflation is above target, and the domestic growth outlook has improved,” reinforcing expectations for another move higher in the policy rate even as markets assess how much further the tightening cycle can realistically extend.

The NZD/USD pair falls as the US Dollar (USD) rebounds amid hawkish sentiment surrounding the US Federal Reserve (Fed) policy stance. Traders increased their bets on a September rate hike after Warsh said the Fed will "have work to do" if policymakers are not confident that underlying ‌inflation is returning to its 2% target.

Market expectations for Federal Reserve policy have shifted sharply, with the CME FedWatch Tool now pricing in a greater than 66% probability of an interest rate hike in September. This reflects a significant increase from just a week ago, when the likelihood of a hike stood at approximately 41%.

Investors are simultaneously preparing for a crowded economic slate that could further influence monetary policy expectations. Key updates on US manufacturing and services sector activity are scheduled for release later in the day, serving as a prelude to the crucial August Nonfarm Payrolls (NFP) report due on Friday.

Goolsbee flags persistent inflation, keeps Fed bias broadly hawkish

Fed's Goolsbee delivered a moderately hawkish message, with an FXS Speechtracker score of 6.2/10, only marginally above the 6.1/10 historical average and signaling continuity rather than a tonal shift. Agreement that inflation is the main issue, that demand-driven price pressures are hard to address, and that inflation has lasted longer than expected underscores a firm focus on price stability, even as Goolsbee was comfortable holding rates steady at the July FOMC and avoided strong views on meeting frequency. The remark that the Fed and Treasury are not at cross purposes further supports a steady policy narrative, limiting immediate Dollar volatility but keeping upside risks alive if inflation proves sticky.

The FXS Fed Sentiment Index slipped by 0.41 points to 129.29, indicating a slight softening in perceived hawkishness despite the speech remaining well above the neutral 100 threshold. This combination of a minor index pullback and a still-elevated reading suggests the Fed tone is firmly hawkish in aggregate, with Goolsbee's comments reinforcing inflation vigilance while not escalating the hawkish bias relative to the established baseline.

Technical Analysis:

In the daily chart, NZD/USD trades at 0.5910. The pair holds above the 50-day Exponential Moving Average (EMA) at 0.5866, hinting at a mildly constructive undertone, yet it is capped by the shorter nine-day EMA at 0.5926, which keeps upside momentum in check for now. The 14-day Relative Strength Index (RSI) at 53 is hovering just above the neutral line, suggesting steady but not aggressive buying interest, while the latest reading of the FXS Fed Sentiment Index around 129 points to a calmer Fed-related backdrop that may limit directional conviction.

On the topside, immediate resistance is located at the 9-day EMA at 0.5926, and a sustained break above this barrier would open the way for a more decisive recovery phase. On the downside, initial support is offered by the 50-day EMA at 0.5866; a daily close back below this level would weaken the nascent bullish tone and expose the pair to a deeper pullback within the recent range.

(The technical analysis of this story was written with the help of an AI tool. Know more.)