NZD/USD hovers around 16-month low near 0.6550, Employment data in focus

• NZD/USD grinds lower around multi-month bottom, offers no surprise on the week-start.
• Fed policymakers stay hawkish after signaling March rate hike, US ECI allowed bears to take a breather of late.
• China PMI eased before a week-long holiday season, New Zealand/US jobs report will be the key this week.
• Geopolitical tension surrounding Russia escalates, no major data/event to watch on Monday.

NZD/USD dribbles around 0.6550, struggling to keep late Friday’s bounce off a 16-month low amid a quiet start to the week.

The Kiwi pair printed the heaviest weekly fall since mid-August 2021 in the last week on the US Federal Reserve’s (Fed) hawkish halt. Also adding to the pair’s weakness was the Omicron spread in New Zealand (NZ) and geopolitical concerns surrounding Russia-Ukraine. In doing so, the quote ignored the upbeat NZ Consumer Price Index (CPI) for the fourth quarter (Q4). However, this week’s employment data from the US and New Zealand will be important for the pair traders amid fresh concerns challenging the Fed’s 0.50% rate hike in March.

US Dollar Index (DXY) rose to the highest levels since July 2020 before retreating from 97.44 on Friday after the US Q4 Employment Cost Index (ECI) eased to 1.0% from 1.2% market consensus and 1.3%. The wage-related data challenged the market’s previous concerns of 50 basis points (bps) of a rate hike by the Fed when it meets in March. It should be noted, however, that the Fed’s preferred gauge of inflation, namely Core PCE Price Index for December rose to 4.9%, versus 4.8% forecast and 4.7% prior, to keep the Fed hawks on the table.

Following the US data release, Federal Reserve Bank of Minneapolis President Neel Kashkari said that he expects Fed to raise rates at the March meeting. Though, the policymaker emphasized the importance of incoming data while also saying, “Have to see how data plays out.” On the same line was Raphael Bostic, president of the Fed’s Atlanta branch who reiterated his call for three Fed rate lifts in 2022, in an interview with the Financial Times (FT), with the first coming in March. “If the data say that things have evolved in a way that a 50 basis point move is required or [would] be appropriate, then I’m going to lean into that . . . If moving in successive meetings makes sense, I’ll be comfortable with that,” said Fed’s Bostic per FT.

Elsewhere, New Zealand Prime Minister Jacinda Ardern and Governor-General Dame Cindy Kiro are both in line for their covid test results as being among passengers asked to self-isolate after being on a flight with a positive case, per NZ Herald. The news also mentioned, “It comes as 103 new community cases of the virus were recorded in New Zealand yesterday, and one new death.”

It’s worth noting that Reuters recently ran a story suggesting that the US Senate is close to legislation to sanction Russia, which in turn will escalate the geopolitical tension between the West and Moscow. As a result, the risk-off can keep downside pressure on the Antipodeans.

Amid these plays, the US 10-year Treasury yields dropped three bps to 1.778% whereas the Wall Street benchmarks had a positive day to end the week.

Moving on, this Wednesday’s Q4 jobs report from New Zealand and monthly employment data from the US, up for publishing on Friday, will be crucial for NZD/USD prices forecasts. That said, a lack of major data/events on Monday will highlight the risk catalysts for fresh impulse.

Technical analysis

Unless rising back beyond a downward sloping previous support line from March 2021, around 0.6665-70, NZD/USD remains vulnerable to test the 50% Fibonacci retracement (Fibo.) of March 2020 to February 2021 upside, near 0.6465. That said, the RSI conditions hint at a corrective pullback before resuming the fortnight-old downtrend.