New Zealand Dollar steady above 0.5900 as traders eye RBNZ, Fed

NZD/USD trades around 0.5910 on Monday, virtually unchanged on the day at the time of writing. The New Zealand Dollar (NZD) retains some support from improving Chinese activity data, but the move remains limited as investors prepare for the Reserve Bank of New Zealand (RBNZ) decision on Wednesday.

Chinas National Bureau of Statistics (NBS) reported that the Manufacturing Purchasing Managers Index (PMI) rose to 49.8 in August from 49.2 in July, beating expectations of 49.7. Despite the stronger-than-expected improvement, the indicator remains below the 50 threshold separating expansion from contraction in manufacturing activity. The Non-Manufacturing PMI remained unchanged at 49, also in contraction territory.

The Chinese data nevertheless provides moderate support to the New Zealand Dollar due to the close trade ties between New Zealand and China. An improvement in Chinese activity tends to strengthen the outlook for New Zealand exports, although current PMI levels suggest that economic momentum in China remains fragile.

On the domestic front, investors are now focusing on the upcoming RBNZ decision. The NZIER Monetary Policy Shadow Board suggests that the central bank should raise its Official Cash Rate (OCR) by 25 basis points in September. Traders will also monitor guidance on the future path of interest rates, as the prospect of another tightening move by year-end could support the NZD.

This prospect is partly offset by the recent deterioration in New Zealand business confidence. The ANZ Business Confidence Index fell to 53.7 in August from 56.1 previously, while the Activity Outlook declined to 48.2 from 49.3, pointing to some moderation in the domestic economic outlook.

On the US side, the US Dollar (USD) benefits from the hawkish tone adopted by Federal Reserve (Fed) Chair Kevin Warsh at the Jackson Hole symposium. Warsh stressed that the recent better-than-expected inflation data are not sufficient to demonstrate a lasting improvement in underlying price pressures and indicated that the central bank still has work to do if inflation does not move sufficiently toward its target.

According to the CME FedWatch Tool, markets now see around a 62% chance of a Fed rate hike in September, a sharp increase following Warshs comments. This repricing of the US monetary policy outlook provides support to the Greenback and helps keep NZD/USD around 0.5910 despite the more encouraging Chinese data.

Attention is likely to gradually shift toward the RBNZ decision on Wednesday before the key US employment data due on Friday. The Nonfarm Payrolls (NFP) report and the Unemployment Rate could alter expectations surrounding the Feds next decision and, consequently, determine the next directional impulse for the US Dollar against the Kiwi.

In the one-hour chart, NZD/USD trades at 0.5911, retaining a mildly bearish near-term tone as it holds beneath the 100-period simple moving average (SMA) at 0.5946 and the 200-period SMA at 0.5949. The pair is attempting to stabilize just above nearby horizontal demand at 0.5900, while the Relative Strength Index (RSI) at 35.9 hovers near oversold territory, hinting that selling pressure could be losing some momentum without yet signaling a clear reversal.

On the topside, initial resistance appears at 0.5930, followed by the clustered 100-period and 200-period SMAs at 0.5946 and 0.5949, with a stronger cap further up at 0.5967. On the downside, immediate support is located at 0.5900, ahead of a more significant floor at 0.5860, where a break would likely open the way for a deeper decline in the pair.