NZD/USD: Week-start gap-up to 0.6850 needs validation from US inflation, central bankers

• NZD/USD jumps half a percent to begin the trading week after snapping three-week downtrend in the last.
• Risk-positive headlines from Russia, China allow the Kiwi pair to consolidate recent losses.
• US inflation clues, multiple central bankers’ speeches and geopolitical clues eyed for clear directions.

NZD/USD begins the trading week on a front foot, after posting the first weekly loss on four, as weekend news suggests fewer challenges to the risk appetite and allows the Kiwi pair to consolidate the latest moves. That said, the quote seesaws around 0.6850 after posting a gap-up opening amid early Monday in Asia.

Among the key catalysts, doubts about Russian President Vladimir Putin’s power in Moscow and hopes of major stimulus from China gained major attention of late.

“Heavily armed Russian mercenaries withdrew from the southern Russian city of Rostov under a deal that halted their rapid advance on Moscow but raised questions on Sunday about President Vladimir Putin's grip on power,” said Reuters in this regard.

On the other hand, Ning Jizhe, deputy head of the economic committee of the Chinese People's Political Consultative Conference (CPPCC) and a former vice head of the National Development and Reform Commission (NDRC) flagged concerns about sooner stimulus from China and allowed the NZD/USD to rebound, due to its business ties with Beijing. “China needs to step up measures as soon as possible to bolster a faltering post-COVID recovery in the world's second-largest economy,” said China’s Ning Jizhe per Reuters.

However, growth concerns and hawkish Federal Reserve expectations keep the Kiwi buyers chained as the latest round of global economics backed slowdown fears while the US data have been upbeat and suggest two-more rate hikes.

On Friday, US S&P Global PMIs for June came in mixed as the Manufacturing PMI dropped to 46.3 from 48.4 prior, versus 48.5 expected, whereas the Services PMI improved to 54.1 from 54.0 expected despite being lesser than the 54.9 previous monthly figure. With this, the Composite PMI declined to 53.0 versus 54.4 market forecasts and 54.3 prior.

Following the data, Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said, “Any further rate hikes will of course have a further dampening effect on this sector (services) which is especially susceptible to changes in borrowing costs."

Federal Reserve Bank of San Francisco President Mary Daly told Reuters on Friday that two more interest rate increases this year would be a "very reasonable projection."

Amid these plays, Wall Street benchmarks drop and the US Treasury bond yields grind higher, which in turn puts a floor under the US Dollar and exerts downside pressure on the NZD/USD.

Moving on, central bankers’ speeches at the ECB Forum and the US Core Personal Consumption and Expenditure (PCE) data, the Fed’s preferred inflation gauge, will be crucial to watch for market players.

Technical analysis

NZD/USD bounces off a one-month-old ascending support line, near 0.6130 at the latest, but the recovery remains elusive unless crossing the 200-DMA on a daily closing basis, around 0.6160 at the latest.