NZD/USD fades bounce off yearly low as Omicron, Fed’s Powell favor bears

• NZD/USD fails to extend bounce off one-year low.
• Market sentiment sours amid mixed concerns over South African covid variant, fears of Fed tapering.
• Fed Chair Powell confirms inflation not ‘transitory’, pushed for faster taper in testimony.
• Australia Q3 GDP, China Caixin Manufacturing PMI eyed for fresh impulse ahead of busy US calendar.

NZD/USD retreats towards the 0.6800 threshold, following a corrective pullback after refreshing the yearly bottom with 0.6772. That said, the Kiwi pair remains pressured around 0.6818 during the early hours of Wednesday morning in Asia.

With the varied opinion of the current vaccines’ ability to tame the South African strain for the coronavirus, dubbed as Omicron, markets remain jittery and rush to safe-haven assets like bonds and the US dollar. Adding to the bearish bias for the Kiwi pair were the hawkish comments from Federal Reserve (Fed) Chairman Jerome Powell, in his testimony on the CARES act before the Senate Banking Committee.

After a mildly positive start to Tuesday’s trading in Asia, risk appetite soured on comments from Moderna’s Chief Stéphane Bancel who said, per the Financial Times (FT), “that existing vaccines will be much less effective at tackling Omicron than earlier strains of Covid-19 and warned it would take months before pharmaceutical companies can manufacture new variant-specific jabs at scale.” It should be noted, however, that representatives of Pfizer and Oxford tried placating market fears citing no such evidence supporting the fact that the current jab will not be able to contain the virus strain.

It should be observed that nine-month low prints of the US CB Consumer Confidence and softer housing data helped bears to take a breather before Fed’s Powell pulled the US Dollar Index (DXY) back from the weekly low while saying, “It is time to retire the term ‘transitory’ for inflation." Also weighing on the mood and the NZD/USD were his comments suggesting the risk of more persistent inflation and signals for discussing faster taper in the December meeting.

Elsewhere, China’s official NBS Manufacturing PMI jumped past the 50.00 level for the first time in three months while New Zealand Building Permits for October recently dropped below -1.9% prior to -2.0% in October.

Amid these plays, Wall Street benchmarks posted losses and the US 10-year Treasury yields refreshed a two-month low before closing around 1.45%. Further, the DXY printed a four-day downtrend from the monthly high ahead of consolidating losses around 95.90.

Looking forward, the risk aversion wave may keep the NZD/USD prices pressured and hence highlight the headlines concerning the Fed and Omicron, which in turn emphasize on the second day of Powell’s testimony and US ISM PMI’s. On an immediate basis, Australia’s Q3 GDP and China’s Caixin PMI will be important to follow.

Technical analysis

Despite refreshing the yearly low, NZD/USD prices failed to offer a daily closing below the 0.6800-6790 region comprising the 61.8% Fibonacci retracement (Fibo.) level of June 2020 to February 2021 upside and multiple levels marked during September and November 2020. Failure to conquer the key support joins oversold RSI conditions to portray a corrective pullback targeting September’s low around 0.6860. However, any further advances will aim for July’s low of 0.6881 and the previous support line from June 2020 near the 0.6900 round figure.