NZD/USD regains 0.6800 as Omicron fears fade, China PMI eyed

• NZD/USD holds onto the bounce from yearly low, recently picking up bids.
• Market sentiment improved as second thoughts revealed Friday’s moves as overreaction to South African covid variant.
• Biden rejected restrictive measures for now, Fed’s Powell up for citing covid challenges employment, inflation.
• China’s official PMI for November will be important to watch.

NZD/USD cheers improvement in market’s mood following a slump to refresh the yearly low around 0.6800, picking up bids to 0.6825 during early Tuesday morning in Asia.

With the global medical experts buying some time before ringing alarm on the South African covid variant, dubbed as Omicron, market sentiment improved at the week’s start. Adding to the risk-on mood were comments from US President Joe Biden and prepared testimony of Federal Reserve (Fed) Chairman Jerome Powell, as well as US Treasury Secretary Janet Yellen. Furthermore, a lenient start to New Zealand’s traffic-light system also favors the optimists, which in turn favors the NZD/USD prices.

However, comments from Atlanta Federal Reserve President Raphael Bostic and caution ahead of the week’s top-tier data weighed on commodities, which in turn challenges NZD/USD buyers.

The US National Institutes of Health (NIH) and Israeli covid expert Dror Mevorach were joined by Australia’s Health Secretary Greg Hunt to initially ease the market’s extreme fears from the coronavirus variant. The optimism gained momentum after US President Biden said, “Variant is a cause for concern, not a cause for panic,” while also adding, “lockdowns are off the table, for now.”

Following that, prepared remarks for today’s Testimony of Fed’s Powell eased concerns over the rate hike and offered additional support to the Antipodeans. Fed Chair Powell said, per Reuters, “The recent rise in COVID-19 cases along with the emergence of the new Omicron variant pose "downside risks" to employment and economic growth, and "increased uncertainty for inflation.” The same contradicts comments from Fed’s Bostic who said during the weekend that covid is the source of inflation.

It’s worth observing that US Treasury Secretary Yellen also placates market pessimism while pushing Congress to overcome the US debt limit deadlock, as well as highlighting the strength of the US economy.

Furthermore, New Zealand’s new COVID-19 Protection Framework, known as the traffic light system, comes into effect on Friday and has initially put most country parts in the Orange zone, with mild restrictions, except for North Island. Additional support measures to help businesses battle the activity restrictions also back the NZD/USD bulls.

Amid these plays, stocks in the US and Europe recovered, after mildly bid Asian equities, whereas US 10-year Treasury yields regains 1.5% status and underpinned the US Dollar Index (DXY) to consolidate Friday’s losses.

Moving on, New Zealand’s monthly sentiment numbers from Australia and New Zealand Baking Group (ANZ) may entertain NZD/USD traders. However, major attention will be given to China’s official NBS Manufacturing PMI and Non-Manufacturing PMI for November, expected 49.6 and 53 versus 59.2 and 52.4 in that order. Above all, virus updates and testimony by Fed’s Powell, as well as Yellen, will be crucial to watch.

Technical analysis

NZD/USD keeps the rebound from the 0.6800-0.6790 support zone, where 61.8% Fibonacci retracement (Fibo.) level of June 2020 to February 2021 upside joins multiple levels marked during September and November 2020. However, a sustained trading below the 17-month-old support line, now resistance around 0.6900, keeps pair sellers hopeful.