NZD/USD defends two-week uptrend around mid-0.7100s on NZ holiday

• NZD/USD stays near Friday’s closing, avoids surprises on Labour Day holiday.
• Mixed PMIs, Fed’s Powell joined Treasury yields’ pullback to keep buyers hopeful.
• Evergrande, US stimulus news battle fresh covid woes in China, Fed tapering concerns to entertain traders.
• Second-tier US data, risk catalysts to watch for fresh impulse.

NZD/USD begins the week’s trading with fewer moves around 0.7150 as New Zealand (NZ) celebrates Labour Day holiday. The kiwi pair’s last two consecutive weekly advances put it near the highest levels since June amid the US dollar weakness. The up-moves, however, have been questioned of late, after hitting the multi-day top, amid mixed clues.

On Friday, the US Dollar Index (DXY) dropped for the seventh day in the last eight as market sentiment improved on headlines concerning the US stimulus, as well as from China. Also weighing on the greenback were mixed prints of the US preliminary PMI readings for October.

While the US policymakers, including President Joe Biden, signaled nearness to the much-awaited infrastructure spending deal, China’s Evergrande managed to pay $83.5 million in interest on a U.S. dollar bond and relieved the market’s stress. On the same line, Evergrande’s latest communication to have restarted 10 projects in six cities including Shenzhen tame fears emanating from the struggled real-estate player. Furthermore, the US and China sound hopeful over the phase one trade deal despite the latter’s inability to match the trade commitments, which in turn favor the market sentiment and help the Antipodeans like NZD/USD.

Alternatively, the Fed policymakers’ latest comments before the blackout period kept showing the tapering as the favored outcome while flashing fewer signals over rate hikes. On Friday, US Fed Chairman Jerome Powell said, “I do think it's time to taper; not time to raise rates,” per Reuters.

It’s worth observing that the recent covid conditions in China and Russia have been grim and challenge the risk-on mood, as well as the commodities. As per the latest comments from Mi Feng, a spokesman at the National Health Commission, shared by Reuters, ''There is increasing risk that the outbreak might spread further, helped by ‘seasonal factors’”.

Amid these plays, Wall Street refreshed record tops and the US 10-year Treasury yields eased from a five-month high, keeping the DXY near the lowest levels since last September.

Given the off in New Zealand and a light calendar in Asia, NZD/USD may remain sidelined during the early hours of Monday’s trading session. However, risk catalysts, mainly from China, may entertain the momentum traders ahead of the US Chicago Fed National Activity Index for September and Dallas Fed Manufacturing Business Index for October.

Technical analysis

NZD/USD keeps pullback from a four-month-long ascending resistance line, previously targeting the 200-DMA level surrounding 0.7100. However, bullish MACD and firmer RSI line, not overbought, dim prospects of the pair’s further weakness, which if ignored will need validation from August month’s peak of 0.7089 before convincing the sellers. On the flip side, the 0.7200 threshold and the stated trend line resistance line near 0.7220 guards the quote’s short-term recoveries.