NZD/USD refreshes daily low, around 0.5915 amid modest USD strength and softer risk tone

• NZD/USD drifts lower for the second straight day and is pressured by a combination of factors.
• The uncertainty over the Fed’s rate-hike path prompts some follow-through USD short covering.
• China’s economic woes take its toll on the risk sentiment and weigh on the risk-sensitive Kiwi.

The NZD/USD pair extends the previous day's rejection slide from the 0.6000 psychological mark, or a near four-week high and remains under heavy selling pressure for the second straight day on Tuesday. Spot prices extend the descending trend through the first half of the European session and drop to a two-day low, around the 0.5915 region in the last hour.

The US Dollar (USD) gains some follow-through traction and recovers further from its lowest level since September 20 touched on Monday, which, in turn, is seen as a key factor dragging the NZD/USD pair. Federal Reserve (Fed) officials offered a mixed signal over the future rate-hike path on Monday. This, along with a generally weaker risk tone, is seen underpinning the safe-haven Greenback and driving flows away from the risk-sensitive New Zealand Dollar (NZD).

Fed Governor Lisa Cook noted that the central bank's current target interest rate is adequate to return inflation to the Fed's 2% target. This reaffirmed expectations that the Fed is done raising interest rates. In contrast, Minneapolis Fed President Neel Kashkari that the US economy has proved to be very resilient and under tightening will not get inflation back to 2% in a reasonable time. This raises uncertainty over the Fed's next policy move and prompts USD short covering.

The global risk sentiment, meanwhile, takes a hit in reaction to rather unimpressive Chinese trade balance data, which indicated that recovery in the world's second-largest economy remains uneven. In fact, the General Administration of Customs reported that China's trade surplus fell sharply from $77.71 billion to $56.53 billion in October – its worst level since May 2022. Adding to this, a worse-than-expected slide in exports adds to worries about the worsening overseas demand.

That said, a fresh leg down in the US Treasury bond yields might hold back the USD bulls from placing aggressive bets and lend some support to the NZD/USD pair. Traders might also prefer to wait for fresh cues about the Fed's policy outlook. Hence, the focus will remain on speeches by influential FOMC members, including Fed Chair Jerome Powell's appearance on Wednesday and Thursday, which will play a key role in driving the near-term USD demand.

In the meantime, Tuesday's release of Trade Balance data from the US, along with the broader risk sentiment, will be looked upon to grab short-term trading opportunities around the NZD/USD pair. The aforementioned fundamental backdrop, meanwhile, seems tilted in favour of bearish traders and supports prospects for a further depreciating move for spot prices amid expectations that the Reserve Bank of New Zealand (RBNZ) will keep its policy rate unchanged in November.

Technical levels to watch