NZD/USD drops back below 0.6800 on Biden’s speech, PBOC eyed

• NZD/USD fades bounce off monthly support line, consolidates the week’s first daily gains.
• Biden hints at tighter monetary policy, warns Russia while signaling China’s lack of meeting purchase commitments.
• Wider US-NZ rate differentials helped Kiwi gain the previous day.
• PBOC rate action, Aussie jobs report will be important for the day.

NZD/USD returns to the seller’s desks, declining to 0.6780 during the initial Asian session on Thursday.

The Kiwi pair rose for the first time in a week the previous day after the US Treasury yields eased from the multi-day top. However, challenges to the risk appetite and cautious sentiment ahead of today’s key events recalled the sellers.

US President Joe Biden’s press conference was the latest blow to the market’s mood as he touched various risk-sensitive issues ranging from Russia to China, not forget Fed. US President Biden said, “China is not meeting its purchase commitments,” but also mentioned Chief Trade negotiator Katherine Tai’s efforts to placate Sino-American trade tussles.

Biden also praised Fed Chair Jerome Powell’s push to recalibrate the support also raised concerns over faster rate hikes and balance sheet normalization, which in turn exerted additional downside pressure on the NZD/USD prices.

Read: US President Biden: Inflation has everything to do with supply chain

In addition to the aforementioned catalysts, indecision over the People’s Bank of China (PBOC) Interest Rate Decision also weigh on NZD/USD prices. The PBOC is up for conveying its Interest Rate Decision at 01:30 AM GMT with market players equally divided amid the Chinese central bank’s early signals of a rate cut and the latest comments from PBOC Deputy Governor Liu Guoqiang. The PBOC official mentioned that the central bank “will keep yuan exchange rate basically stable.”

It’s worth noting that New Zealand’s plan to review phased border reopening next month and an easing in the US Treasury yields from two-year, coupled with the firmer equities and commodities, favored the NZD/USD buyers the previous day.

Amid these plays, ANZ said, “We changed our call yesterday and now expect the RBNZ to keep hiking till the OCR reaches 3%. Local rates were already itching to go higher, and they capitulated yesterday afternoon, with the 2-yr swap almost back to November’s post-COVID high, which mildly benefitted the NZD.”

Moving on, Australia's employment data and inflation expectations may also direct short-term NZD/USD move ahead of the PBOC. Should the Chinese central bank announce a rate cut, the kiwi pair may have a reason to pare recent losses.

Technical analysis

Despite crossing the weekly resistance line, now support line 0.6775, NZD/USD reversed from the 100-SMA level of 0.6805, which in turn joins sluggish MACD and RSI line to favor sellers. That said, an upward sloping support line from December 20, near 0.6755 by the press time, becomes crucial for the bears.

Alternatively, a sustained break of the 100-SMA level of 0.6805 will aim for the late December 2021 peak near 0.6860 but a two-month-old horizontal area surrounding 0.6890-95 will challenge the NZD/USD buyers afterward.

Overall, failures to cross the short-term SMA join sluggish Momentum indicators to favor bears.