NZD/USD clings to gains near YTD peak, above mid-0.6300s amid China stimulus

NZD/USD hits a fresh YTD peak on Monday amid optimism over more stimulus from China.
Geopolitical risks lend some support to the safe-haven buck and act as a headwind for the pair.
Traders look forward to the Fed Chair Jerome Powell’s speech to grab short-term opportunities.

Haresh Menghani FXStreet

The NZD/USD pair attracts some buyers for the third successive day and climbs to a fresh year-to-date (YTD) peak, around the 0.6375 region during the Asian session on Monday.

Against the backdrop of a slew of stimulus measures announced last week, the People's Bank of China (PBOC) said on Sunday that it would tell banks to lower mortgage rates for existing home loans before October 31. The move provides an additional boost to the already upbeat market mood and turns out to be a key factor benefiting the risk-sensitive Kiwi. Apart from this, subdued US Dollar (USD) price action, amid dovish Federal Reserve (Fed) expectations, further seems to act as a tailwind for the NZD/USD pair.

According to the CME Group's FedWatch Tool, the markets are currently pricing in over a 50% chance of another oversized interest rate cut by the US central bank in November. This keeps the USD Index (DXY), which tracks the Greenback against a basket of currencies, near its lowest level since July 2023 touched last week. That said, the risk of a further escalation of conflict in the Middle East and an out-out war in the region seems to underpin the safe-haven buck, capping the upside for the NZD/USD pair.

Meanwhile, the mixed PMI prints released from China earlier today do little to impress bulls or provide any impetus. In fact, China’s official Manufacturing PMI improved to 49.8 in September from 49.1, beating estimates of 49.5, while the NBS Non-Manufacturing PMI unexpectedly fell to 50.0 from August’s 50.3 figure. China's Caixin Manufacturing PMI contracted to 49.3 in September, from 50.4 in the previous month, and the Caixin Services PMI dropped to 50.3 during the reported month from 51.6 in August.

Nevertheless, the fundamental backdrop suggests that the path of least resistance for spot prices is to the upside and supports prospects for an extension of a three-week-old uptrend. Investors now look to the release of the Chicago PMI, due later during the early North American session, though the focus will remain glued to Fed Chair Jerome Powell's speech. This, along with the broader risk sentiment, will drive the USD demand and allow traders to grab short-term opportunities around the NZD/USD pair.

Economic Indicator

Caixin Manufacturing PMI

The Caixin Manufacturing Purchasing Managers Index (PMI), released on a monthly basis by Caixin Insight Group and S&P Global, is a leading indicator gauging business activity in China’s manufacturing sector. The data is derived from surveys of senior executives at both private-sector and state-owned companies. Survey responses reflect the change, if any, in the current month compared to the previous month and can anticipate changing trends in official data series such as Gross Domestic Product (GDP), industrial production, employment and inflation.The index varies between 0 and 100, with levels of 50.0 signaling no change over the previous month. A reading above 50 indicates that the manufacturing economy is generally expanding, a bullish sign for the Renminbi (CNY). Meanwhile, a reading below 50 signals that activity among goods producers is generally declining, which is seen as bearish for CNY.

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