NZD/USD remains vulnerable to refresh 2021 low as Omicron sours sentiment

• NZD/USD remains pressured around yearly low, recently sidelined.
• Risk sentiment remains sour as virus variant spread fears of fresh activity measures during holiday season.
• Delay in US stimulus, Sino-American tussles add to risk-off mood, PBOC fails to placate fears.
• Light calendar ahead, qualitative catalysts are crucial for fresh impulse.

NZD/USD defends 0.6700 threshold, teasing the yearly low while retreating to 0.6710 during early Tuesday morning in Asia. The kiwi pair dropped for the second consecutive day on Monday as fears over the South African covid variant, Omicron, escalated while the deadlock over the US Build Back Better (BBB) plan adds to the risk-aversion, weighing on the Antipodeans.

After an initial rejection of the Omicron fears, global leaders are all worried over the COVID-19 variant that pushes some of the leading economics, like the UK and Europe, to recall strict activity restrictions during the holiday season. The fears of Omicron were recently backed by the World Health Organization (WHO) while saying, “The Omicron variant of the coronavirus is spreading faster than the Delta variant and is causing infections in people already vaccinated or who have recovered from the COVID-19 disease,” per Reuters.

In New Zealand, the weather conditions are a bit favorable but the cases are gradually rising. “As of Monday there were 22 cases of Omicron in MIQ in New Zealand,” said NZ Herald. The Pacific nation targets Australia’s 90% vaccination rate to battle the virus strain.

Elsewhere, US President Joe Biden’s much-awaited BBB stimulus plan gets a rejection from Senator Joe Manchin, making it hard to cross the House considering the Republicans’ readiness to avoid favoring the plan and Democrats’ wafer-thin majority. Even so, House Speaker Nancy Pelosi and US President Biden stay hopeful of getting the aid package through during early 2022.

It’s worth noting that the US-China tussles escalated and offer another negative for the NZD/USD prices, considering New Zealand’s close trade ties with Beijing. Recently, Chinese foreign minister Wang Yi said, per Reuters, "If there is confrontation, then (China) will not fear it, and will fight to the finish." China’s Wang Yi adds, "There is no harm in competition but it should be ‘positive’”. On the same line were fears of the Fed rate-hike, backed by Fed Board of Governors member Christopher Waller, also weigh on the NZD/USD.

Amid these plays, US Treasury yields posted 2.3 basis points (bps) of an upside after declining to the monthly lows. Further, the Wall Street benchmarks also posted losses but the commodities traded mixed, with oil down and gold up.

Looking forward, New Zealand’s Credit Card Spending for November, expected -2.1% YoY versus -5.6% prior, will entertain NZD/USD traders but major attention will be given to risk catalysts for clear direction.

Technical analysis

NZD/USD pullback from 100-EMA joins bearish MACD signal and downbeat RSI line, not oversold, to keep sellers hopeful of refreshing the yearly bottom, currently around 0.6700.

In doing so, 61.8% Fibonacci Expansion (FE) of November 23 to December 16 moves, around 0.6670, will offer an intermediate halt during the likely slump towards November 2020 low near 0.6590.

Meanwhile, an upside clearance of the 100-EMA level of 0.6800 isn’t a green pass to the NZD/USD bulls as a one-month-old horizontal line near 0.6860 and the 200-EMA close to 0.6870 will be crucial hurdles before welcoming the bulls.