NZD/USD drops to its lowest level since November 2022, closer to mid-0.5900s

• NZD/USD drifts lower for the fifth successive day and is pressured by a combination of factors.
• China's economic woes and the downbeat domestic data weigh on the New Zealand Dollar (NZD).
• Bets for more Fed rate hikes continue to underpin the USD and contribute to the ongoing decline.

The NZD/USD pair remains under some selling pressure for the fifth successive day and drops to its lowest level since November 2022, closer to mid-0.5900s during the Asian session on Monday.

Growing concerns about the worsening economic conditions in China continue to undermine antipodean currencies, including the New Zealand Dollar (NZD), which loses additional ground in reaction to the downbeat domestic data. In fact, Business NZ's Services Index plunged into contraction territory during July and came in at 47.8 – marking the lowest level since January 2022. Moreover, the previous month's reading was also revised down to 49.6 from 50.1 and pointed to the slowing economy. This, along with the underlying bullish sentiment surrounding the US Dollar (USD), continues to exert downward pressure on the NZD/USD pair.

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, climbs to its highest level since July 7 and remains supported by expectations that the Federal Reserve (Fed) will stick to its hawkish stance. The bets were reaffirmed by the US PPI on Friday, which climbed slightly more than expected in July. Against the backdrop of a moderate rise in consumer prices in July, the data suggested that the battle to bring inflation back to the Fed's 2% target is far from being won. This keeps the door open for one more 25 bps Fed rate hike in 2023 and remains supportive of a further rise in the US Treasury bond yields, underpinning the USD.

Apart from the aforementioned fundamental backdrop, Friday's sustained breakdown below the 0.6000 psychological mark is seen as another factor that prompts some follow-through technical selling around the NZD/USD pair. This, in turn, suggests that the path of least resistance for spot prices is to the downside. Traders, however, might refrain from placing aggressive bets ahead of the crucial Chinese macro data dump on Tuesday and the Reserve Bank of New Zealand (RBNZ) monetary policy meeting on Wednesday.

Technical levels to watch