NZD/USD remains on the defensive around the mid-0.6000s amid strong US Dollar, higher bond yields

• NZD/USD trades on a weaker note for the third consecutive day, near 0.6052 on Tuesday.
• The US ISM Services PMI came in better than expected in January.
• Chinese service sector activity grew less than anticipated in January.

The NZD/USD pair remains on the defensive around the mid-0.6000s during the early Asian session on Tuesday. The robust US economic data and the hawkish remarks from the Federal Reserve (Fed) officials lift the US Dollar and weigh on the NZD/USD pair. At press time, the pair is trading at 0.6052, down 0.02% on the day.

On Monday, the US ISM Services PMI rose to 53.4 in January from 50.5 in December, better than the market expectation of 52.0. New Orders rose to a three-month high of 55.0. The Employment Index rebounded into expansionary territory, rising to 50.5. Finally, the Prices Index jumped to 64.0. 

Minneapolis Fed president Neel Kashkari said on Monday that a strong economy and a possibly higher neutral rate of interest mean the Fed can take time before deciding to cut the benchmark interest rate. On Sunday, Fed Chair Jerome Powell stated that the central bank will proceed carefully with interest rate cuts this year. The markets are now pricing less than a 20% chance of a March rate cut. The hawkish tone from the Fed provides some support to the Greenback broardly.

The services sector in China grew less than expected in January. Data released by Caixin on Monday revealed that China’s Services PMI remained in expansionary territory for 13 straight months. The Chinese Caixin Services PMI came in at 52.7 in January from the previous reading of 52.9. A property crisis and a sluggish economic recovery in China might exert some pressure on the China-proxy New Zealand Dollar (NZD). 

Looking ahead, the New Zealand market is closed on Waitangi Day. Traders will take more cues from the Fed’s Mester speech on Tuesday. Later this week, the New Zealand’s Unemployment Rate(Q4) will be due on Wednesday, and Chinese Consumer Price Index (CPI) and Producer Price Index (PPI) for January will be released on Thursday.