NZD/USD eyes fresh two-year low under 0.6400 amid risk-aversion, China trade data eyed

• NZD/USD holds lower grounds near the lowest levels since June 2020, down for the third consecutive day.
• Market sentiment sours amid fears of tighter monetary policy ahead, China’s worsening covid conditions and fresh sanctions on Russia.
• US NFP matched revised down prior figures, Unemployment Rate also stays intact at 3.6%.
• Inflation numbers are the key for this week, China trade figures for April can direct immediate moves.

NZD/USD bears attack the multi-month low surrounding 0.6400, tested on Thursday, as the week-start trading fails to push back the sellers. The bearish bias could be well-linked to the market’s expectations of further hardships due to tighter monetary policy and risk-negative headlines emanating from China, as well as relating to Russia.

The fresh week fails to bring any change in the market’s dull mood, at least during the start, as challenges to the risk profile stay heavy ahead of the key inflation numbers from the US, New Zealand and China. Also weighing on the sentiment, as well as on the NZD/USD prices are fears of worsening coronavirus conditions in China, New Zealand’s major customer, as well as heavy Western sanctions on Russia.

Although the Fed refrained from 75 basis points (bps) of the rate hike, the headline US jobs report failed to match the softer forecasts and maintained pressure on the US central bank to rush towards tighter monetary policy. The same leads the rest of the major central banks towards further rate hikes and drowns the riskier assets like NZD/USD. That being said, the US Nonfarm Payrolls (NFP) reprinted the 428K figures, if compared to the revised figures for March, by surpassing the 391K forecasts. On the same line, the Unemployment Rate also remained intact at 3.6%.

Following the data, Minneapolis Fed President and FOMC member Neel Kashkari said, per a blog post on Medium, “Given that long-term real rates have the greatest influence on the demand for credit, financial conditions are already nearly back to neutral levels.”  The policymaker also said his assessment of the nominal neutral rate of interest is still that it is around 2.0%. It’s worth noting that the President of the Federal Reserve Bank of St. Louis James Bullard reiterated his bullish bias and pushed the Fed towards a 3.5% rate.

Elsewhere, weekend news suggested Shanghai introduced further activity restrictions due to covid while the Group of Seven (G7) nations announced additional sanctions on Russia due to its invasion of Ukraine.

Amid these plays, the US dollar is likely to keep adding to its gains while the commodities and the Antipodeans may have to suffer. On an immediate basis, China’s trade numbers for April will be important for the NZD/USD prices due to Auckland’s trade ties with Beijing. The headline Trade Balance is expected to increase to $50.65B versus $47.38B prior while the Imports and Exports may print mixed figures and can probe the bears.

Technical analysis

A downward sloping trend line from late April guards immediate NZD/USD rebound near the 0.6500 threshold. Until then, a convergence of the weekly support line and lows marked during late June 2020, around 0.6380-70, appears a tough nut to crack for the bears.