NZD/USD stays below 0.6200 as traders adopt caution ahead of US labor data

• NZD/USD extends its losses ahead of key economic data scheduled for release later in the week.
• The decline in the US Treasury yields puts downward pressure on the Greenback.
• The New Zealand Dollar depreciates as China's Services Purchasing Managers' Index fell to 51.6 in August from 52.1 in July.

NZD/USD continues its losing streak for the fourth consecutive day, trading around 0.6180 during the Asian hours on Wednesday. The downside of the NZD/USD pair could be attributed to the cautious stance adopted by market participants ahead of key economic data due this week, including the ISM Services PMI and Nonfarm Payrolls (NFP). This data could shed light on the potential size of an expected rate cut by the Fed this month.

The US Dollar depreciates due to lower Treasury yields. 2-year and 10-year yields on US Treasury bonds stand at 3.86% and 3.83%, respectively, at the time of writing. However, the Greenback received support after the release of the ISM Manufacturing PMI. The index inched up to 47.2 in August from 46.8 in July, falling short of market expectations of 47.5. This marks the 21st contraction in US factory activity over the past 22 months.

The New Zealand Dollar (NZD) faces downward pressure as China's Services Purchasing Managers' Index (PMI) declined to 51.6 in August from 52.1 in July. This drop is significant given the strong trade relationship between China and New Zealand.

Additionally, Bank of America (BoA) has revised its economic growth forecast for China, lowering its 2024 projection to 4.8% from the previous 5.0%. For 2025, the forecast is adjusted to 4.5% growth, while the 2026 outlook remains unchanged at 4.5%.

In August, New Zealand's ANZ Commodity Price Index increased by 2.1%, rebounding from a 1.7% drop in July. In a Bloomberg interview on Wednesday, Martin Foo, Director at S&P Global Ratings, cautioned that “New Zealand’s current account deficit needs to narrow further.” Foo added that while he is broadly comfortable with New Zealand’s sovereign rating outlook, he is “closely watching the country’s large current-account deficit and weak economic growth.”