NZD/USD drops to fresh daily low, closer to mid-0.6000s as USD attracts haven flows

The NZD/USD pair struggles to capitalize on its modest gains registered over the past two days and comes under some selling pressure on Wednesday. The pair maintains its offered tone through the early European session and is currently placed near the daily low, near the 0.6060 area, down around 0.20% for the day.

Weaker-than-expected Chinese macro data released earlier this Wednesday adds to worries about a global economic slowdown and weighs on investors' sentiment. This is evident from a generally weaker tone around the equity markets, which lends some support to the safe-haven US Dollar (USD) and exerts some downward pressure on the NZD/USD pair. In fact, China's trade surplus sank to a 13-month low in May, led by a surprise 7.5% slump in exports. The data suggests that overseas demand for Chinese goods remained weak in the wake of worsening economic conditions globally. This, in turn, poses additional headwinds for the world's second-largest economy and undermines demand for antipodean currencies, including the Kiwi.

The New Zealand Dollar (NZD) is further undermined by the Reserve Bank of New Zealand's (RBNZ) explicit signal that it was done with its most aggressive hiking cycle since 1999. That said, the uncertainty over the Federal Reserve's (Fed) next policy move might hold back the USD bulls from placing aggressive bets and help limit losses for the NZD/USD pair. In fact, the recent inflation and labour market data kept alive hopes for a 25 bps lift-off at the June  FOMC meeting. However, dovish rhetoric by several Fed officials last week lifted market bets for an imminent pause in the US central bank's policy tightening cycle. The current market pricing indicates a greater chance that the Fed will leave interest rates unchanged next week.

The expectations lead to a further decline in the US Treasury bond yields, which should continue to act as a headwind for the Greenback and lend some support to the NZD/USD pair. Meanwhile, the recent repeated failures near the 0.6100 round-figure mark favour bearish traders. The aforementioned fundamental backdrop, however, makes it prudent to wait for strong follow-through selling before positioning for any further intraday depreciating move amid absent relevant market-moving economic releases from the US.

Technical levels to watch