NZD/USD keeps the red near daily low, just above mid-0.6100s after softer Chinese data

• NZD/USD retreats further from a multi-week high and is pressured by a combination of factors.
• A technical recession in New Zealand and softer Chinese macro data weigh heavily on the Kiwi.
• The Fed’s signal that rates will increase further underpins the USD and contributes to the slide.

The NZD/USD pair comes under heavy selling pressure during the Asian session on Thursday and retreats further from a three-week high, around the 0.6235 region touched the previous day. The pair maintains its offered tone following the release of mostly disappointing Chinese macro data and currently trades around the 0.6165-0.6170 region, down over 0.60% for the day.

The National Bureau of Statistics (NBS) reported that China’s Retail Sales rose 12.7% YoY in May as compared to the 13.6% growth anticipated and 18.4% increase recorded in the previous month. Furthermore, China's Industrial Production came in at 3.5% YoY against the 3.6% estimated and 5.6% prior. Meanwhile, the Fixed Asset Investment increased 4.0% YTD YoY in May vs 4.4% expected and 4.7% last. The data fuels concerns about slowing growth in the world's largest economy and weigh on antipodean currencies, including the Kiwi.

The New Zealand (NZD) is further undermined by dismal domestic data, showing that the economy contracted by 0.1% in the first quarter and slipped into a technical recession. This comes on the back of the Reserve Bank of New Zealand's (RBNZ) explicit signal that it was done with its most aggressive hiking cycle since 1999 and prompts aggressive selling around the NZD/USD pair. Apart from this, a modest US Dollar (USD) turns out to be another factor that contributes to the offered tone surrounding the major.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, builds on the overnight bounce from a one-month low in the wake of the Federal Reserve's (Fed) hawkish outlook and the intent to resume the rate-hiking cycle. In fact, the US central bank signalled that borrowing costs will increase by another 50 bps by end-December. The markets were quick to react and are now pricing in a greater chance of another 25 bps lift-off in July, which underpins the buck and exerts pressure on the NZD/USD pair.

The aforementioned fundamental backdrop seems tilted in favour of bearish traders. Even from a technical perspective, the overnight failure near the very important 200-day Simple Moving Average (SMA) suggests that the path of least resistance for the NZD/USD pair is to the downside. Traders now look to the US economic data - monthly Retail Sales, Weekly Initial Jobless Claims, the Empire State Manufacturing Index, the Philly Fed Manufacturing Index and Industrial Production figures - for a fresh impetus later during the early North American session.

Technical levels to watch