NZD/USD moves below 0.5850 as Greenback rebounds, awaits Fed decision

• NZD/USD retraces recent gains ahead of Fed policy rate decision.
• China’s NBS PMI data shows a contraction in economic trends; which could affect the Kiwi Dollar.
• New Zealand Building Permits declined by 4.7% against the previous drop of 0.7%.

NZD/USD pulls back as the US Dollar (USD) rebounds after two days of losses, trading lower near 0.5840 during the early European session on Tuesday. Moreover, in September, the disappointing turn in the Chinese economic narrative unfolded with the NBS Manufacturing Purchasing Managers' Index (PMI) unexpectedly contracting to 49.5. This outcome was contrary to the expected consistency at the 50.2 expansion observed in July.

The concerns about China's economic conditions intensified as the NBS Services PMI also dropped to 50.6, falling short of the expected 51.8 and the previous reading of 51.7. The simultaneous contraction in both the manufacturing and services sectors raises substantial concerns about the overall economic health in China, which might undermine the Kiwi Dollar (NZD), given New Zealand’s status as the largest trading partner of China.

On New Zealand’s docket, the seasonally adjusted Building Permits (MoM) reported on Tuesday, declining by 4.7% compared to the previous drop of 0.7%. The Reserve Bank of New Zealand (RBNZ) is expected to adopt a more accommodative stance on interest rate hikes following the soft headline Consumer Price Index (CPI) data, which exerts pressure on the New Zealand Dollar (NZD).

The Employment Change and Unemployment Rate for the third quarter in New Zealand will likely to be crucial indicators that market participants will keenly observe later in the week. These data points provide valuable insights into the labor market, offering cues about the economic landscape, job creation, and overall employment conditions in the country.

United States (US) ADP Employment Change and ISM Manufacturing PMI for October may provide a broader perspective on the US economic situation. These data points can significantly influence market sentiment and contribute to the overall assessment of the economic health and performance of the United States.

Moreover, the anticipation that the US Fed interest rates will be maintained at 5.5% in the upcoming policy meeting is a crucial factor. This expectation, if realized, can lead to increased demand for US Treasury bills, putting downward pressure on US Treasury yields. The interplay of these dynamics is likely to impact the US Dollar (USD), making it an important consideration for traders in the current market environment.