NZD/USD declines towards 0.5800 as DXY rebounds, US PMI buzz

• NZD/USD is expected to drop to near 0.5800 as the DXY has rebounded firmly.
• The impact of the Fed’s hawkish guidance will stay for longer.
• Investors have punished the kiwi dollar on weaker Trade Balance data.

The NZD/USD pair is coming out of the woods as the US dollar index (DXY) has rebounded firmly. The asset has been oscillating in a narrow range of 0.5836-0.5857 and is expected to deliver a downside break, which will drag the asset towards the critical support of 0.5800. Earlier, the asset witnessed a steep fall after failing to sustain above the crucial hurdle of 0.5880. A re-test of the fresh two-year low at 0.5804 will direct the decisive move ahead.

The US dollar index (DXY) has rebounded sharply after the momentum oscillators turned oversold on small timeframes. The DXY is still inside the consolidation range of 111.13-111.44 and an upside break of the same will drive the asset towards a fresh two-decade high at 111.81. The DXY is gaining momentum as the impact of the higher-than-expected hawkish monetary policy by the Federal Reserve (Fed) will stay for longer.

As per the Fed’s policy, the interest rates will peak at around 4.6%. The target for an optimal terminal rate structure has escalated significantly and its consequences have strengthened the negative market sentiment, which is supporting the DXY.

Going forward, the release of the S&P Global PMI will be of utmost importance. As per the preliminary estimates, the Manufacturing PMI will land lower at 51.1 vs. the prior release of 51.5. While the Services PMI will improve to 45.0 against the prior print of 43.7.

On the NZ front, weaker Trade Balance data pushed the kiwi bulls n the tenterhooks. The deficit in NZ Trade Balance data has widened further to -$12.28B vs. the prior release of -$11.97B on an annual basis. Also, the monthly deficit has widened to -$2,447M against the former figure of -$1,406M. The August report on Trade Balance dictates that the imports have advanced to $7.93B vs. the prior print of $7.76B. However, the export numbers have declined to $5.48 in comparison with the former release of $6.35B.