• NZD/USD languishes near the YTD trough and is pressured by a bullish USD.
• Bets for more Fed rate hikes and a softer risk tone continue to underpin the buck.
• The pair seems vulnerable to prolonging a nearly two-month-old descending trend.

The NZD/USD pair remains on the defensive through the Asian session on Thursday and currently trades around the 0.5865-0.5860 region, or its lowest level since November 2022.

The US Dollar (USD) stands tall near a six-month peak in the wake of growing acceptance that the Federal Reserve (Fed) will keep rates higher for longer and turns out to be a key factor weighing on the NZD/USD pair. The markets now seem convinced that the US central bank will stick to its hawkish stance and the bets were reaffirmed by Wednesday's upbeat US macro data, indicating that business activity in the US services sector unexpectedly picked up pace in August.

In fact, the US ISM Non-Manufacturing PMI rose from 52.7 in July to 54.5 last month – the highest level since February. Additional details of the report showed a rise in new orders, pointing to a resilient US economy, and higher Prices Paid sub-component, which was seen as potential signs of still-elevated inflation pressures. This, in turn, increases the odds for one more 25 bps Fed rate hike move by the end of this year and continues to act as a tailwind for the Greenback.

The outlook, meanwhile, remains supportive of elevated US Treasury bond yields, which, along with a softer tone around the equity markets benefits the safe-haven buck and does little to provide any respite to the risk-sensitive Kiwi. Market participants now seem worried about economic headwinds stemming from rising borrowing costs. This comes on the back of a slowdown in China – the world's second-largest economy – and tempers investors' appetite for riskier assets.

The aforementioned fundamental backdrop suggests that the path of least resistance for the NZD/USD pair is to the downside. That said, the Relative Strength Index (RSI) on the daily chart has moved on the verge of breaking into the oversold territory and holds back bearish traders from placing fresh bets. This makes it prudent to wait for some near-term consolidation before positioning for an extension of the well-established downtrend witnessed over the past two months or so.

Traders now look to the release of the Weekly Initial Jobless Claims data from the US, which, along with speeches by influential FOMC members and the US bond yields, will influence the USD price dynamics and provide some impetus to the NZD/USD pair. Apart from this, the broader risk sentiment might further contribute to producing short-term trading opportunities around the major.

Technical level to watch