NZD/USD bulls seek acceptance near 0.7350 with eyes on RBNZ

• NZD/USD keeps Thursday’s heavy gains to tease the first weekly gain in three.
• RBNZ Inflation Expectations fuelled rate hike concerns ahead of next week’s meeting.
• US Treasury yields, DXY extend previous pullback from multiday high despite firmer data, inflation chatters.
• NZ Credit Card Spending, Fedspeak and China news to entertain traders.

NZD/USD reverses the early US session retreat to snap the two-week downtrend heading into Friday’s Asian session. That said, the Kiwi pair picks up bids to 0.7045, keeping the previous two-day rebound from the monthly low amid rising hopes of a rate hike during the next week’s Reserve Bank of New Zealand (RBNZ) monetary policy meeting on Wednesday.

A 10-year high print of the RBNZ Inflation Expectations for Q4, 2.96% versus 2.27%, propelled the 2-year swap rates to the yearly high and triggered the biggest daily jump of the NZD/USD previous day. The rate change hints at a faster pace of the RBNZ’s reversal to the pandemic-led rate cuts.

However, the same isn’t likely to help the NZD/USD for long as the Australia and New Zealand Banking Group (ANZ) said, “We expect the RBNZ to push on through next year, taking the OCR to 2%. In our view that’ll dent consumers’ enthusiasm to borrow and spend markedly, reducing inflation pressure. Importantly, we’re already very late in the housing and credit cycle, and it won’t take two years of hikes to rein it in.”

Also underpinning the NZD/USD upside was the softer US Dollar Index (DYX) that tracked Treasury yields to mark the second day of loss, extending pullback from the 16-month high after the bond coupons stretched U-turn from the three-week top. That said, the Wall Street benchmarks cheered pullback in the US 10-year Treasury yields as the S&P 500 and Nasdaq posted record closing by the end of Thursday’s North American trading session.

Behind the moves could be the receding US inflation expectations and the mixed comments from the Fed policymakers.

The US inflation expectations can be linked as the key catalysts. US inflation expectations, as measured by the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, drop for the second consecutive day for Wednesday. Further, NY Fed President and FOMC Vice-Chair John Williams highlighted inflation fears and pushed for rate action but mixed comments from Chicago Fed President Charles Evans poured cold water on the face of policy hawks.

It’s worth noting that the firmer prints of the US weekly job numbers and monthly regional manufacturing data couldn’t stop the NZD/USD bulls. On the same line was the downbeat performance of China markets due to the Evergrande saga.

Looking forward, New Zealand Credit Card Spending for October, prior -12.9% YoY, will offer immediate direction to the Kiwi pair traders while catalyst from China and Fedspeak may direct the pair moves afterward. Above all, hopes of the RBNZ will be the key to watch.

Technical analysis

NZD/USD rebound struggles to overcome the 50-DMA hurdle surrounding 0.7355, which in turn highlights bearish MACD signals and the softer RSI line to tease sellers. However, a horizontal area from late September restricts short-term downside around 0.6980. It’s worth noting that the 200-DMA level of 0.7095 adds to the upside filters while bears can aim for a three-month-old support line near 0.6925 on the clear break below 0.6980.