Strong US PMIs Send NZD/USD Tumbling Amid Fed Hike Expectations

The New Zealand Dollar (NZD) plummeted on Wednesday, falling by 1% to trade around 0.5670 at the time of writing. This decline is largely attributed to the strong US economic data, which has reinforced expectations of further interest-rate hikes from the Federal Reserve (Fed).

According to the flash S&P Global US Composite Purchasing Managers Index (PMI), activity in the US private sector accelerated in September, reaching 58.4 from 56 in August. This marked a significant increase and is the fastest pace of expansion in over five years.

The details of the survey were also robust, with the Manufacturing PMI jumping to 57 and the Services PMI rising to 58.7, both significantly above expectations. These readings well above the 50 threshold indicate expanding activity and alleviate concerns about a slowdown in the US economy.

The strong US economic data has provided significant support for the US Dollar (USD), causing the US Dollar Index (DXY) to gain 0.54% and trade around 101.10, reaching a fresh two-month high. The strengthening of the Greenback puts direct downward pressure on NZD/USD.

The shift in monetary policy expectations also supports US Treasury yields, with the ten-year yield hovering around 5.06%. Markets now see around a 68% chance of another rate hike in October, up from around 55% a day earlier, according to the CME FedWatch tool.