NZD/USD drops to 0.5870 area, lowest since mid-May as USD bulls await NFP report

• NZD/USD attracts sellers for the seventh straight day amid a combination of negative factors.
• The uncertainty over US-China trade relations and tariff jitters continues to weigh on the Kiwi.
• The Fed's hawkish tilt acts as a tailwind for the USD and contributes to the ongoing downfall.

The NZD/USD pair prolongs its downtrend for the seventh straight day and drops to its lowest level since mid-May, around the 0.5875-0.5870 region during the early European session on Friday. Moreover, the fundamental backdrop suggests that the path of least resistance for spot prices remains to the downside, though bearish traders might opt to wait for the release of the US jobs data before placing fresh bets.

A private-sector survey showed earlier today that business activity in China's manufacturing sector deteriorated in July as new export orders contracted for a fourth straight month and at a faster pace than the previous month. The S&P Global China General Manufacturing PMI unexpectedly fell to 49.5 from 50.4 in June. This, combined with Thursday's weaker official PMI, points to the loss of growth momentum in the world's second-largest economy at the start of the third quarter, which, in turn, undermines antipodean currencies, including the New Zealand Dollar (NZD).

Meanwhile, the latest round of US-China trade talks this week ended with no deal in place. This adds a layer of uncertainty amid fresh trade jitters and tempers investors' appetite for riskier assets, which turns out to be another factor undermining the Kiwi. In fact, US President Donald Trump signed executive orders on Thursday, placing tariffs on many US trade partners that are set to go into effect in 7 days instead of the Friday deadline initially set. Furthermore, the underlying US Dollar (USD) bullish tone exerts additional downward pressure on the NZD/USD pair.

Fed Chair Jerome Powell said on Wednesday that it was too soon to say whether the central bank would cut rates at the next meeting in September. Powell added that the current modestly restrictive monetary policy has not been holding back the economy, and is in the right place to manage continued uncertainty around tariffs and inflation. This, along with the still sticky inflation, suggests that the Fed will keep rates elevated for longer, which assists the USD to stand tall near its highest level since late May and contributes to the NZD/USD pair's downfall.

The market focus now shifts to the release of the US Nonfarm Payrolls (NFP) report. Friday's US economic docket also features the release of the ISM Manufacturing PMI. This will play a key role in influencing the USD price dynamics and provide some impetus to the NZD/USD pair during the North American session. Nevertheless, spot prices seem poised to register heavy weekly losses, marking the third week of a negative close in the previous four.