NZD/USD recovers Asia Pacific session losses, back in low 0.6500 pre-US ISM Manufacturing data release

• NZD/USD has recovered from an Asia session dip to the 0.6470s to the 0.6520s ahead of US ISM Manufacturing PMI.
• Conditions are likely to remain somewhat subdued ahead of Friday’s official job report.
• If risk appetite continues to stabilise, NZD/USD around 0.6500 or even extending towards 0.6600 makes sense for now.

NZD/USD has rebounded back to the 0.6525 area following a bout of selling pressure during Asia Pacific trade that saw the pair dip as low as the 0.6470s. No one specific fundamental catalyst was behind the overnight drop, with markets instead broadly in wait-and-see mode ahead of the release of a barrage of key US data points in the coming days. At current levels, the pair is trading with gains of about 0.2% on the day, though is very slightly in the red on the week.

NZD/USD traders will be on the lookout for the release of the ISM Manufacturing PMI survey for May at 1400GMT on Wednesday. The closely scrutinised report will provide a timely insight into the health of the US industrial sector and the inflationary/supply chain pressures it is facing. A key theme in FX markets in recent weeks has chatter about inflation in the US having peaked and, thus, the hawkishness of Fed policy tightening expectations having also peaked.

These themes have weighed on US yields and the buck in recent sessions (though both are higher this week). The upcoming data will thus be viewed in the context of these themes. But traders probably won’t want to place any big FX market bets on Wednesday given the proximity to the release of the May official labour market report on Friday. Nonetheless, should risk appetite continue to stabilise as has been the case in recent weeks, NZD/USD holding in the 0.6500 area or even extending on to 0.6600 makes sense for now.