NZD/USD clings to gains near YTD peak above mid-0.6300s amid China stimulus

• NZD/USD hits new YTD high on Monday amid optimism over more stimulus from China.
• Geopolitical risks provide some support for safe haven money and act as a headwind for the pair.
• Traders are eagerly awaiting Fed Chairman Jerome Powell’s speech to take advantage of short-term opportunities.

The NZD/USD pair is attracting some buyers for the third day in a row and climbing to a fresh year-to-date (YTD) high around the 0.6375 region during the Asian session on Monday.

Amid a raft of stimulus measures announced last week, the People’s Bank of China (PBOC) said on Sunday it will tell banks to cut mortgage rates on existing home loans before October 31. The move provides a further boost to already upbeat market sentiment and is proving to be a key factor benefiting risk-sensitive Kiwis. Apart from this, moderate US Dollar (USD) price action, amid subdued Federal Reserve (Fed) expectations, appears to continue to act as a tailwind for the NZD/USD pair.

According to CME Group’s FedWatch tool, markets are currently pricing in a more than 50 percent chance of another outsized interest rate cut by the U.S. central bank in November. That keeps the USD index (DXY), which tracks the greenback against a basket of currencies, near the July 2023 low hit last week. That said, the risk of further escalation of conflict in the Middle East and a war in the region appears to be supporting safe haven money, limiting the NZD/USD’s upside.

Meanwhile, the mixed PMI prints released from China earlier today do nothing to impress the bulls or provide any impetus. In fact, China’s official manufacturing PMI improved to 49.8 in September from 49.1, beating estimates of 49.5, while the NBS’s non-manufacturing PMI unexpectedly fell to 50, 0 from the figure of 50.3 in August. China’s Caixin Manufacturing PMI fell to 49.3 in September from 50.4 the previous month, and the Caixin Services PMI fell to 50.3 in the reported month from 51.6 in August.

However, the fundamental context suggests that the path of least resistance for spot prices is to the upside and supports the prospects for an extension of a three-week uptrend. Investors are now eyeing the Chicago PMI release later in the opening session in North America, although the focus will remain on Fed Chairman Jerome Powell’s speech. This, along with broader risk-on sentiment, will boost USD demand and allow traders to take advantage of short-term opportunities around the NZD/USD pair.