NZD/USD retreats towards 0.6350 with eyes on Fed Chair Powell

• NZD/USD eases from three-week high, snaps two-day uptrend.
• Hawkish Fedspeak, lack of fresh positives from China probe Kiwi bulls.
• Powell’s speech will be crucial ahead of Thursday’s US inflation as NZD/USD is susceptible to Fed wagers.

NZD/USD fades upside momentum after two-day advances as it drops to 0.6370 during early Tuesday’s Asian session. The Kiwi pair previously rose to the highest level in three weeks as headlines surrounding China and the US data helped the NZD/USD bulls. However, recent comments from the Fed officials and the cautious mood ahead of this week’s key data and events seem to challenge the pair buyers.

That said, softer US data concerning the wage growth and ISM Services PMI for December, raised speculations that the Federal Reserve (Fed) finally has an upper hand in taming inflation, suggesting a pause to aggressive rate hikes, which in turn propelled NZD/USD prices.

However, hawkish comments from the Fed policymakers seemed to have challenged the NZD/USD traders. On Monday, Atlanta Federal Reserve bank president Raphael Bostic said that it is ''fair to say that the Fed is willing to overshoot.'' On the same line, San Francisco Federal Reserve Bank President Mary Daly stated that they are determined, united, resolute to bring inflation down.

Additionally, the Federal Reserve Bank of New York's monthly Survey of Consumer Expectations showed on Monday that the US consumers' one-year inflation expectation declined to 5% in December from 5.2% prior. Alternatively, the three-year ahead expected inflation remained unchanged at 3% and the five-year ahead expected inflation edged higher to 2.4% from 2.3%.

Amid these plays, the US 10-year Treasury yields dropped five basis points to 3.51% while printing the three-day downtrend whereas Wall Street closed mixed.

Moving on, the economic calendar appears light ahead of Thursday’s US Consumer Price Index (CPI) for December. However, today’s Fed Chairman Jerome Powell’s speech will be crucial for the NZD/USD traders to watch for clear directions amid receding hawkish bias for the Fed. Should Powell refrains from conveying hawkish bias, the NZD/USD could refresh the multi-day high.

Technical analysis

Despite the recent pullback, the NZD/USD pair’s capacity to stay beyond the 21-DMA support of 0.6330 keeps buyers hopeful.