NZD/USD directs NZ Employment-led fall towards 0.6200 on US-China tension, hawkish Fed rhetoric

• NZD/USD takes offers to refresh intraday low as risk-aversion favors US dollar bulls.
• Fed’s Bullard rules out US recession while supporting 50 bps rate hike in September.
• China warns US over Taiwan issue, suspends natural sand exports to Taipei.
• Risk catalysts, China Caixin Services PMI could entertain traders ahead of US data.

NZD/USD pleases bears while refreshing the weekly low around 0.6210 during Wednesday’s Asian session. In doing so, the Kiwi pair justifies the markets’ risk-off mood, as well as hawkish comments from the US Federal Reserve (Fed) policymakers. That said, New Zealand (NZ) employment data for the second quarter (Q2) drowned the pair earlier in the day.

New Zealand employment numbers for the second quarter (Q2) raised concerns over the Reserve Bank of New Zealand’s (RBNZ) hawkish mood and drowned the New Zealand Dollar (NZD) on release. That said, NZ Unemployment Rate surprisingly grew to 3.3% versus 3.1% expected and 3.2% prior while the Employment Change dropped to 0.0% versus 0.4% market forecasts and 0.1% previous readings.

Elsewhere, St. Louis Federal Reserve President James Bullard rejected US recession fears while favoring the 50 basis points (bps) rate hike. Further, San Francisco Fed President Mary Daly said that she is looking for incoming data to decide if they can downshift the rate hikes or continues at the current pace, as reported by Reuters. However, Chicago Fed President Charles Evans showed support for a 50 basis points (bps) rate hike for the September policy meeting if inflation does not improve, as reported by Reuters. Furthermore, Cleveland Fed President Loretta Mester, on the other hand, said she does not think the country is suffering a recession, adding that the labor market is in great shape. On inflation, however, she noted that it has not decreased "at all."

It should be noted that China’s recent warning to the US to not play with the Taiwan card and promises to punish Taipei independence supporters, as well as blocking natural sand exports to the Asian economy, seemed to magnify the risk-off mood and drowned the US dollar. The fears growth stronger tussles among the world’s top-two economies will have more negative consequences for the world amid recession fears.

Against this backdrop, the Wall Street benchmarks closed negative for the second consecutive day while the S&P 500 Futures print mild losses by the press time. It should be observed, however, that the US 10-year Treasury yields pause the previous day’s rebound from the four-month low and test the US Dollar Index run-up.

Looking forward, monthly prints of China’s Caixin Services PMI could direct immediate NZD/USD moves ahead of the US Factory Orders for June and ISM Services PMI for July. Above all, headlines surrounding China and Fed will be important to watch for clear directions.

Technical analysis

A successful downside break of the three-week-old ascending trend line, at 0.6270 by the press time, directs NZD/USD prices towards the 21-DMA support level near 0.6210 at the latest. In a case where the Kiwi pair remains weak past 0.6210, the 0.6200 threshold may act as a validation point for the downward trajectory to refresh the yearly low near 0.6060.