NZD/USD keeps the red below 0.6100 on stronger USD, reacts little to Chinese trade data

• NZD/USD comes under some renewed selling pressure on Tuesday amid a modest USD strength.
• Bets for more Fed rate hikes remain supportive of elevated US bond yields and underpin the buck.
• The mixed Trade Balance data from China fails to impress bulls or provide any impetus to the pair.

The NZD/USD pair struggles to capitalize on its modest gains registered over the past two trading days and meets with a fresh supply during the Asian session on Tuesday. Spot prices, however, manage to recover a few pips from the daily low touched in the last hour and currently trade just below the 0.6100 mark, still down nearly 0.30% for the day.

The better-than-expected release of Trade Balance data from China, showing that the surplus rose to $80.6 billion in Jul from $70.62 billion in the previous month, lends some support to antipodean currencies, including the New Zealand Dollar (NZD). Additional details of the report, however, showed that imports slumped 12.4% YoY and exports dropped 9.2% YoY, indicating weaker domestic and overseas demand. This, along with a softer tone around the Asian equity markets and the emergence of some US Dollar (USD) buying, keeps a lid on any meaningful upside for the NZD/USD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, gains some positive traction for the second straight day and continues to draw support from expectations for further policy tightening by the Federal Reserve (Fed). The bets were lifted by the latest US monthly jobs report released on Friday, which pointed to continued tightness in the labour market and should allow the Fed to stick to its hawkish stance. Adding to this, Fed Governor Michele Bowman said on Monday that additional interest rate hikes will likely be needed to lower inflation to the central bank's 2% target.

In remarks prepared for delivery to a "Fed Listens" event in Atlanta, Bowman added that  inflation remains too elevated, and job growth and other indications of activity show the economy has continued expanding at a "moderate pace." This keeps the door for one more 25 bps lift-off in September or November wide open and remains supportive of elevated US Treasury bond yields, which, in turn, is seen acting as a tailwind for the Greenback. The fundamental backdrop favours the USD bulls and suggests that the path of least resistance for the NZD/USD pair remains to the downside.

Hence, any attempted recovery might still be seen as a selling opportunity and runs the risk of fizzling out rather quickly. Bearish traders, however, need to wait for a sustained break below the 0.6500 psychological mark before positioning for any further losses. Market participants now look to the release of the US Trade balance data for some impetus later during the early North American session. The focus, however, will remain glued to the latest consumer inflation figures from China and the US, due for release on Wednesday and Thursday, respectively.

Technical levels to watch