NZD/USD bears attack 0.6800 on USD rebound, firmer yields, China GDP eyed

• NZD/USD remains pressured after declining the most in two weeks the previous day.
• DXY bounced off nine-week low as hawkish Fedspeak propelled bond yields.
• US Retail Sales, Michigan Consumer Sentiment dropped, virus fears prevail.
• China Q4 2021 GDP, Retail Sales will be crucial for immediate direction.

NZD/USD fades late Friday’s bounce off 0.6792 while retreating to 0.6808 during early Monday morning in Asia.

The Kiwi pair dropped the most in a fortnight the previous day amid the US dollar’s stellar rebound, backed by the hawkish Fedspeak. The move paid a little attention to softer data, which in turn raised concern that the move could be due to the weekend positioning. The latest weakness in the pair, however, could be linked to the cautious sentiment ahead of the key data from New Zealand’s key customer China.

The US Dollar Index (DXY) gained the most in two weeks following its bounce off the lowest levels since November 10, around 95.16 at the latest. The greenback gauge benefited from the last dose of the Fed comments before the policymakers sealed the blackout period ahead of next week’s Federal Open Market Committee (FOMC) meeting.

Federal Reserve Bank of San Francisco President Mary Daly said that the latest Omicron wave will extend the period that inflation will remain high. Fed’s Daly also signaled that officials are “going to have to adjust policy”. On the same line, Federal Reserve Bank of New York President John Williams said Fed is approaching a decision to begin raising interest rates.

Talking about data, US Retail Sales for December printed -1.9% MoM figure versus 0.0% expected and +0.2% prior. Further, the Michigan Consumer Sentiment Index for January also eased to 68.8 versus 70 forecasts and 70.6 previous readouts. The details also suggest that the highest inflation in 40 years weighs on consumer behavior.

Elsewhere, NZ Prime Minister (PM) Jacinda Ardern crossed wires, via NZ Herald, during the weekend while suggesting the Government's next steps would be cautious, although she did not say whether caution meant remaining at the orange setting, or moving the country down to green, the most permissive setting.

It’s worth noting that the NZD/USD traders paid more attention to the hawkish Fedspeak that’s more likely to have fuelled the DXY, coupled with weekend positioning, than the downbeat US data. Equities also traded mixed while the US 10-yields rose 8.4 basis points (bps) to snap a four-day downtrend while closing at 1.793% on Friday.

Looking forward, NZD/USD traders will pay close attention to China data as the world’s biggest commodity user is struggling with the covid and financial market risks. “China’s industrial production, GDP and retail sales data will be eagerly awaited as the market ponders spill-overs from the real estate slowdown and the battle between the COVID-zero strategy and Omicron,” said ANZ. Forecasts suggest the headline Q4 2021 GDP to rise 1.1% QoQ versus 0.2% prior while the Retail Sales may ease to 3.7% versus 3.9% for December. Additionally, Industrial Production for the said month is likely to have softened to 3.6% versus 3.8% YoY.

Technical analysis

NZD/USD stays below 50-DMA after reversing from a seven-week-old horizontal hurdle surrounding 0.6890. The latest weakness takes clues from the RSI retreat but the bullish MACD signals keep the pair buyers hopeful until the pair breaks a monthly support line, around 0.6750 by the press time.

Alternatively, the 50-DMA level of 0.6855 precedes a seven-week-old horizontal hurdle surrounding 0.6890 to limit short-term advances.