NZD/USD retreats to 0.6800 despite firmer China inflation

• NZD/USD snaps two-day rebound from 2021 bottom as market sentiment sours.
• China CPI jumped the most since August 2020 in December but risk-off mood keep bears hopeful.
• Omicron, China and Fed rate hike fears are back to the table ahead of Friday’s US inflation data.

NZD/USD struggles to cheer upbeat China inflation figures, down 0.16% intraday to re-test 0.6805 level during early Thursday. Although firmer data from the key customer helps the Kiwi pair buyers to provide a tough fight to the recently arrived bears, the risk-off mood seems to welcome the latest entrants.

China’s Consumer Price Index (CPI) jumped the most since August 2020, by 2.3% YoY and 0.4% MoM in November. Further, the Producer Price Index (PPI) crossed 12.6% forecasts to arrive at 12.9% YoY in November.

Read: Chinese CPI rises at fastest pace since August 2020

It’s worth noting that China also raised the Yuan mid-point to the highest in 3.5 years, to 6.3498 yuan per dollar, to battle the challenges at home.

Among them, geopolitical tussles with the US and fears of default emanating from Evergrande and Kaisa are the major ones. Recently, US Assistant Secretary of Defense for Indo-Pacific Security Affairs Ely Ratner said, “Bolstering Taiwan's self-defenses is an ‘urgent task’ and an essential feature of deterring China”. Additionally, headlines concerning Iran and the US-Russia tussle over the Ukraine issue add to the sour sentiment and weigh on the NZD/USD prices.

Furthermore, a four-day rebound of the US inflation expectations ahead of the key US CPI data, up for Friday, propels market chatters over the Fed rate hike and fuels the US Treasury yields as well as the US Dollar Index (DXY).

That said, the US 10-year Treasury yields rise 2.3 basis points (bps) to 1.53%, up for the fourth consecutive day, whereas S&P 500 Futures print mild losses to challenge the three-day uptrend.

Given the fresh risk-aversion amid a lack of major data/events, NZD/USD traders will keep their eyes on the risk catalysts for fresh impulse. However, weekly US Jobless Claims may offer intermediate moves to the Kiwi pair.

Technical analysis

NZD/USD pullback remains elusive beyond 0.6740 level comprising the previous resistance trend line from November 19. Meanwhile, fresh recovery moves can aim for a 10-week-old horizontal area surrounding 0.6860-65.