NZD/USD trades with a mild negative bias around 0.6200 mark, lacks follow-through

• NZD/USD stalls the overnight strong move up near a technically significant 200-day SMA.
• The disappointing Chines PMI exerts pressure on the Kiwi amid a modest USD strength.
• The risk-on mood caps for the safe-haven buck and limits losses for the risk-sensitive Kiwi.

The NZD/USD pair attracts some sellers near the 200-day Simple Moving Average (SMA) during the Asian session on Tuesday and erodes a part of the previous day's strong gains. Spot prices drop to a fresh daily low in reaction to the weaker Chinese macro data, albeit manage to rebound a few pips in the last hour and currently trade with a mild negative bias around the 0.6200 mark.

A private survey showed that business activity in China's manufacturing sector unexpectedly shrank in July, which turns out to be a key factor exerting some pressure on antipodean currencies, including the Kiwi. In fact, China's Caixin Manufacturing PMI fell in contraction territory and came in at 49.2 for July, down from the previous month's reading of 50.5. This, along with a modest US Dollar (USD) strength, is seen weighing on the NZD/USD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs back to its highest level since July 10 touched last Friday and remains well supported by the prospects for further policy tightening by the Federal Reserve (Fed). The upbeat US GDP report released last week pointed to an extremely resilient economy and kept the door for one more 25 bps rate-hike by the Fed in September or November wide open.

Moreover, the Fed Chair Jerome Powell had also said that the economy still needs to slow and the labour market to weaken for inflation to credibly return to the 2% target. That said, signs of easing inflation might force the Fed to end its fastest interest rate hiking cycle since the 1980s. Apart from this, the risk-on mood, bolstered by hopes for more stimulus from China, caps the safe-haven buck and lends support to the risk-sensitive Kiwi.

This, in turn, helps limit the downside for the NZD/USD pair, at least for the time being, and warrants some caution before placing aggressive bearish bets. Market participants now look to the US economic docket, featuring the release of the ISM Manufacturing PMI and JOLTS Job Openings data later during the early North American session. This, along with the broader risk sentiment, might provide a fresh impetus to the USD and the major.

Technical levels to watch