NZD/USD remains on the defensive near the 0.6060 mark ahead of Chinese/New Zealand data

• NZD/USD bounces off the two-month lows and holds ground near 0.6060 on Wednesday.
• The downbeat Chinese trade data exerts some pressure on the Kiwi.
• The US trade deficit narrowed sharply in June; Imports fell to the lowest level since November 2021.
• Investors await Chinese inflation data, New Zealand inflation expectations report.

The NZD/USD pair recovers its recent loss near the 0.6060 region after reaching two-month lows at 0.6033 in the early Asian session. Markets turn cautious as investors expressed concern about Chinese growth, and Fitch downgraded the credit ratings of midsize and small U.S. lenders, and issued a warning about possible cuts to the ratings of larger institutions.

Meanwhile, the US Dollar Index (DXY), a measure of the value of the USD against six other major currencies, attracts some buyers above 102.50. The safe-haven flow benefits the US Dollar (USD) and acts as a headwind for the NZD/USD pair.

The downbeat Chinese data exerts some pressure on the Kiwi. That said, the dollar value of China’s exports YoY in July plunged -14.5%, worse than expectations of -12.5% in June, while Imports dropped -12.4% YoY from -5%. The figures fuel concern about the economic slowdown in the world’s second-largest economy. Market players await Electronic New Zealand’s Car Sales for July and the inflation expectations report for fresh impetus later in the day.

On the other hand, the US trade deficit narrowed sharply in June. Imports fell 1.0% to $313 billion from $316.1 billion the previous month, the lowest level since November 2021. On the same line, Exports dropped 0.1% to $247.5 billion, a 15-month low. The trade deficit came in at $65.5 billion, higher than expectations of $65 billion and below the $68.3 billion prior. The US trade data show a sluggish economic rebound and subdued global demand in the country.

Additionally, Fitch downgraded the credit ratings of midsize and small US lenders and issued a warning about possible cuts to the ratings of larger institutions. The headline adds to the negative sentiment in the market and boosts the Greenback broadly.

Looking ahead, market participants will keep an eye on the Chinese Consumer Price Index (CPI) YoY for July. Also, the New Zealand’s Electronic Car Sales and Inflation Expectations report will be due on Wednesday. On the US front, the release of the July CPI and Producer Price Index (PPI) later this week will be in the spotlight. The data could significantly impact the US Dollar's dynamics and give the NZD/USD pair a clear direction.