NZD/USD grinds lower around 0.7100 ahead of China inflation data, ECB
- NZD/USD struggles for a clear direction after three-day downtrend, recent rebound.
- Pre-ECB anxiety joins tapering chatters and virus woes to weigh on market sentiment, underpinning the USD.
- China CPI, PPI for August can offer immediate direction but nothing more important than ECB.
NZD/USD fades bounce off one-week low, pressured around 0.7100 during early Thursday morning in Asia.
The kiwi pair dropped during the last three days as markets rushed to the US dollar’s safe-haven allure as post-Jackson Hole optimism faded amid increased fears of the coronavirus and economic performance, not to forget tapering woes at major central banks. Also challenging the optimists were the pre-ECB caution and wait time for the major customer China’s inflation data.
Risk appetite remains weak, underpinning the US dollar and weighing on the Antipodeans, as global fears of the economic transition from the pandemic escalate amid a lack of clarity over tapering at the key central banks. With the recently rising covid numbers in the US, not to forget in Australia and the UK, chatters over vaccinations and market pessimism grow. The same requires the central banks, like the Fed and the RBNZ, to keep the easy money flowing despite brighter fundamentals.
That said, the US JOLTS Job Openings refreshed record top in July, increasing 749k to 10.9 million, whereas Fed Beige Book also cites fears of higher inflation amid supply shortage.
It’s worth noting that the NZD/USD traders are more concerned about the European Central Bank (ECB) monetary policy decision, for now, which in turn add to the risk-off mood amid mixed messages from the policymakers. On Thursday, ECB’s Robert Holzmann backed quicker tapering while Bostjan Vasle backed a “highly accommodative” monetary policy.
Furthermore, doubts over US President Joe Biden’s six-pronged strategy, up for publishing on Thursday, joins the US Diplomat’s mixed view on Jerome Powell’s reappointment as the Fed Chairman to weigh on the sentiment. Additionally, signals from Republicans and some of the Democratic Party members to offer a bumpy road to the US stimulus also spoiled the mood and backed the USD’s safe-haven demand.
Amid these plays, US equities posted losses for Wednesday while the 10-year Treasury yields dropped 3.5 basis points (bps) to 1.336%. Further, the US Dollar Index (DXY) jumped to the highest in two weeks during the three-day advances.
Looking forward, China’s Consumer Price Index (CPI) and Producer Price Index (PPI) for August, expected to remain unchanged on YoY near 1.0% and 9.0% in that order, should be watched for immediate direction. However, major attention will be given to the European Central Bank’s (ECB) widely chattered hints over the tapering and hence the pre-ECB caution may restrict the NZD/USD unless any major surprises. Even so, risk-off mood can favor the sellers.
Technical analysis
NZD/USD seesaws between 100-DMA and 200-DMA, respectively around 0.7080 and 0.7120, but a clear downside break of a 13-day-old rising trend line, near 0.7180 now, keeps sellers hopeful.