NZD/USD EDGES LOWER TO NEAR 0.6100, AWAITS US ISM SERVICES PMI DATA

• NZD/USD loses ground amid a stable US Dollar on Monday.
• New Zealand Terms of Trade Index (Q4) indicated a trade deficit of 7.8% against the expected 0.2% deficit.
• CME FedWatch Tool suggested Fed rate cut probability in March stands at 5.0%, with May and June estimated at 26.8% and 53.8%, respectively.

NZD/USD retraces recent gains, lowering down to near 0.6100 during the Asian session on Monday. The Terms of Trade Index released by Statistics New Zealand, a measure of the balance amount between imports and exports, indicated a trade deficit of 7.8% for the fourth quarter of 2023, which was higher than market expectations of a 0.2% deficit. The previous reading was a 0.6% decrease in the third quarter.

On Friday, ANZ – Roy Morgan Consumer Confidence (Jan) showed an improvement of 0.9 to 94.5 from 93.6. However, the New Zealand Dollar (NZD) had gained ground previously due to comments from Reserve Bank of New Zealand (RBNZ) Governor Adrian Orr, who mentioned that the central bank anticipates starting policy normalization in 2025. Due to elevated inflation, Orr highlighted the necessity for monetary policy to remain restrictive for the time being.

The US Dollar Index (DXY) faced downward pressure primarily due to a contraction in the United States (US) manufacturing sector observed in February. The US ISM Manufacturing PMI dropped to 47.8 in February, from the previous reading of 49.1. The index has surprisingly missed the market expectation of 49.5. Additionally, the US Michigan Consumer Sentiment Index declined to 76.9 in February, falling below the market expectation of remaining unchanged at 79.6.

Atlanta Fed President Raphael W. Bostic has expressed his expectation that the first cut in interest rates would likely be appropriate, possibly occurring towards the end of this year at the earliest, which provides some support for the US Dollar (USD). According to the CME FedWatch Tool, the probability of Fed rate cuts in March stands at 5.0%, while the likelihood of cuts in May and June is estimated at 26.8% and 53.8%, respectively.

Investors will likely monitor closely upcoming economic data releases, including the ISM Services PMI data, ADP Employment Change, and Nonfarm Payrolls for February. Moreover, the focus will be on the speech of Federal Reserve Chair Jerome Powell on Wednesday and Thursday for further insights into the central bank's monetary policy stance.