NZD/USD drops to near 0.5950 as US Dollar recovers amid cautious market mood

• NZD/USD falls to near 0.5950 amid strength in the US Dollar.
• The strength of the USD Index is backed by a strong US economy.
• The NZ economy grew at a robust pace of 0.9% in the April-June quarter.

The NZD/USD pair dropped sharply to near 0.5950 after facing severe selling pressure near the psychological resistance of 0.6000. The Kiwi asset corrects as the appeal for risk-sensitive currencies weakens due to the deepening risks of a global slowdown.

S&P500 futures added decent gains in the European session, portraying some improvement in the risk appetite of the market participants while the overall market mood is still risk-off. The US Dollar Index (DXY) jumps to a near six-week high of around 105.80 as the US economy is resilient in comparison with European and Asian economies.

China’s property sector remained vulnerable as households postponed fresh demand for real estate due to the rising jobless rate and deteriorating demand environment. The Chinese economy is exposed to upside deflation risks while European economies are struggling to bear the consequences of high inflation.

On the other hand, the US economy is materially strong backed by easing inflation, steady labor demand, decent wage growth, and robust consumer spending. Meanwhile, investors shifted focus to the US Durable Goods Orders for August, which will be published on Wednesday.               

On the New Zealand front, the growth rate in the April-June quarter remained upbeat despite higher interest rates by the Reserve Bank of New Zealand (RBNZ). The Q2 Gross Domestic Product (GDP) grew by 0.9% vs. estimates of 0.5%. In the January-March quarter, the economy remained stagnant. The annual Q2 GDP rose at a slower pace of 1.8% vs. Q1 GDP growth at 2.2% but outperformed expectations of a 1.2% growth rate.