The New Zealand Dollar (NZD) experienced a sharp decline against the US Dollar (USD) on Wednesday, falling by 1% to trade around 0.5670. This drop was driven by stronger-than-expected US economic activity data, which reinforced expectations of further interest-rate hikes by the Federal Reserve [1]. The flash S&P Global US Composite Purchasing Managers Index (PMI) surged to 58.4 in September from 56 in August, marking the fastest expansion in US business activity in over five years, according to Chris Williamson, Chief Business Economist at S&P Global Market Intelligence [1].
Detailed PMI figures showed the US Manufacturing PMI jumping to 57, well above the consensus forecast of 53.5, while the Services PMI rose to 58.7, compared to the expected 56. Both readings are well above the 50 threshold, indicating robust expansion and alleviating concerns about a slowdown in the US economy [1]. The US Dollar Index (DXY), which tracks the USD against a basket of six major currencies, gained 0.54% and traded around 101.10, reaching a fresh two-month high. This strengthening of the USD exerted direct downward pressure on NZD/USD [1].
The strong US activity data has heightened expectations that the Federal Reserve will continue tightening monetary policy. The Fed recently raised its policy rate by 25 basis points, bringing the target range to 3.75%-4%, and its latest projections suggest at least one more rate hike this year. Market expectations for another rate hike in October have increased to around 68%, up from 55% a day earlier, according to the CME FedWatch tool. Elevated US Treasury yields, with the ten-year yield hovering around 5.06%, further support the USD and weigh on risk-sensitive currencies like the NZD [1].
Technical analysis shows NZD/USD maintaining a bearish tone, trading at 0.5671 below both the 100-period SMA (0.5720) and the 200-period SMA (0.5743). The Relative Strength Index (RSI) at 29.15 suggests oversold conditions, indicating that while downside pressure dominates, a corrective bounce is possible. Immediate resistance is seen at 0.5695, with further resistance at 0.5720 and 0.5735. On the downside, support is at 0.5670, and a break below this level could expose the next bearish target at 0.5626 [1].
CONCLUSION
The NZD/USD pair is under strong selling pressure due to robust US economic data and rising expectations for further Fed rate hikes. Elevated US Treasury yields and a strengthening USD continue to weigh on risk-sensitive currencies. Unless US economic momentum slows or Fed expectations shift, NZD/USD may remain vulnerable to further declines.