NZD/USD remains depressed blow 0.5900 mark, seems vulnerable near one-week low

• NZD/USD drifts lower for the fifth straight day and drops to over a one-week low on Friday.
• The disappointing domestic data and China’s economic woes exert pressure on the Kiwi.
• Bets that the Fed is not done raising rates underpin the USD and contribute to the decline.

The NZD/USD pair attracts fresh sellers following an intraday move up to the 0.5935-0.5940 region and drops to over a one-week low during the Asian session on Friday. Spot prices, however, manage to rebound a few pips in the last hour and currently trade just below the 0.5900 mark, down nearly 0.15% for the day.

The New Zealand Dollar (NZD) meets with some supply in reaction to the dismal domestic data, which showed that business activity in the manufacturing sector contracted further in October. The latest Business NZ Performance of Manufacturing Index (PMI) fell significantly from 45.1 in September to 42.5 – marking the lowest level of activity for a non-COVID-affected month since May 2009. The data reaffirmed expectations that the Reserve Bank of New Zealand (RBNZ) will keep its policy rate unchanged in November. Apart from this, persistent worries about the worsening economic conditions in China exert additional pressure on antipodean currencies, including the Kiwi.

The US Dollar (USD), on the other hand, holds steady near the weekly high touched on Thursday and remains well supported by reviving bets for at least one more interest rate hike by the Federal Reserve (Fed). The bets were lifted by the recent hawkish comments by several Fed officials, acknowledging the US economic resilience. Adding to this, Fed Chair Jerome Powell noted that policymakers are encouraged by the slowing pace of inflation but are not sure that the monetary policy is sufficiently restrictive to keep the momentum going. This, along with a weak auction of 30-year Treasury bonds, continues to push yields higher across all maturities and underpins the buck.

Apart from this, a generally softer tone around the equity markets turns out to be another factor benefitting the safe-haven buck and contributing to driving flows away from the perceived riskier Kiwi. This, in turn, suggests that the path of least resistance for the NZD/USD pair is to the downside and supports prospects for an extension of this week's rejection slide from the 0.6000 psychological mark, or over a three-week high touched on Monday. Traders now look to the release of the Michigan Consumer Sentiment Index for some impetus later during the North American session.

Technical levels to watch