NZD/USD seems vulnerable below mid-0.6200s amid sustained USD buying

• NZD/USD drifts lower for the third straight day amid a further USD recovery from the YTD low.
• Reduced bets for a 50 bps Fed rate cut in November and geopolitical risks boost the Greenback.
• Expectations that the RBNZ will start cutting rates next week favor bears ahead of the US data. 

The NZD/USD pair prolongs this week's retracement slide from the 0.6375-0.6380 region, or its highest level since July 2023 and remains under some selling pressure for the third successive day on Thursday. The downward trajectory drags spot prices below mid-0.6200s, or a one-and-half-week low during the Asian session and is sponsored by some follow-through US Dollar (USD) buying. 

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, prolongs this week's recovery from its lowest level since July 2023 for the third successive day and climbs to a three-week top. The incoming US data pointed to a still resilient labor market and forced investors to scale back their expectations for a more aggressive policy easing by the Federal Reserve (Fed). This, along with persistent geopolitical risks stemming from the ongoing conflicts in the Middle East, benefits the safe-haven buck and contributes to driving flows away from the risk-sensitive Kiwi. 

Iran launched over 200 ballistic missiles at Israel on Tuesday, while the latter conducted a precise air strike and bombed central Beirut in Lebanon during the early hours of Thursday. This raises the risk of a full-blown war in the region and tempers investors' appetite for perceived riskier currencies, including the New Zealand Dollar (NZD). Apart from this, expectations that the Reserve Bank of New Zealand (RBNZ) will start cutting interest rates next week suggest that the path of least resistance for the NZD/USD pair is to the downside and supports prospects for a further downfall. 

Market participants now look to the US economic docket – featuring the release of the usual Weekly Initial Jobless Claims and the ISM Services PMI. This, along with speeches by influential FOMC members and the broader risk sentiment, will drive the USD demand and provide a fresh impetus to the NZD/USD pair later during the North American session. The focus, however, remains glued to the closely-watched US monthly employment details, popularly known as the Nonfarm Payrolls (NFP) report on Friday, which should help in determining the next leg of a directional move.