• US dollar hits fresh highs across the board after US data.
• ISM service for August comes above expectation.
• NZD/USD drops sharply, remains above 0.6000.

The NZD/USD dropped further after the release of the US ISM service sector report and bottomed at 0.6034, the lowest level since May 2020. It then rebounded to 0.6050 trimming losses.

Upbeat US data, bad news

The August ISM service sector index rose unexpectedly to 56.9 against expectations of 55.1. The recovery boosted further the US dollar that printed fresh highs. Equity prices in Wall Street hit new lows and US yields jumped.

The NZD/USD reached levels below last week's lows. It is hovering around 0.6050, still on its way to the lowest daily close in years. A consolidation clearly below 0.6050 should open the doors for a test of 0.6000.

The stronger dollar and the deterioration in risk sentiment could keep the NZD/USD under pressure. Also, commodity prices are falling. The Chinese yuan hit new multi-year lows versus the dollar with USDCNH approaching 7.00.

On Wednesday, China will report trade data for August, and Australia, Q2 growth numbers. The relevant report of the week in New Zealand will be on Thursday with Q2 manufacturing activity. “This reading is key for the economic outlook after Q2 real retail sales unexpectedly fell -2.3% q/q vs. -0.9% in Q1, raising the risk that Q2 GDP also contracts again after -0.2% q/q in Q1”, said analysts at Brown Brothers Harriman.

Technical levels