NZD/USD bears attack 0.6800 with eyes on yearly low as Omicron fears escalate

• NZD/USD fades bounce off 2021 trough, marked on Tuesday.
• NZ Q3 Terms of Trade Index dropped below market forecast and prior, China Caixin Manufacturing PMI printed three-month low.
• Yields decline, equities print losses on first case of Omicron in US, Powell’ hawkish play 2.0.
• Second-tier US data to offer intermediate moves before Friday’s key US jobs report.

NZD/USD grinds lower around short-term horizontal support near 0.6800, reversing the previous corrective pullback from the yearly bottom.

That said, the Kiwi pair struggles amid fresh covid variant woes and the hawkish Fed concerns as traders brace for Thursday in Asia.

In addition to the risk catalysts, downbeat trade data at home, in contrast to the firmer US economics also exerts downside pressure on the NZD/USD prices.

New Zealand’s Terms of Trade Index came in 0.7% for Q3 2021, versus 2.0% expectations and 3.3% prior. On the other hand, US ADP Employment Change and ISM Manufacturing PMI details for November ticked above market consensus of 525K and 61.0 respectively to 534K and 61.1 in that order.

Given the firmer US data supporting the Fed’s hawkish view, Federal Reserve Chairman Jerome Powell reiterated his inflation fears but also said he still believes inflation will come down “meaningfully” in the second half of 2022, during testimony against a Senate Commission.

It’s worth noting that the finding of the first case of the South African coronavirus variant, dubbed as Omicron in the US added to the risk-off mood, following the initial relief rally in the markets on the World Health Organization (WHO) comments. The WHO tried calming the virus woes with statements defending the current vaccines and marking less severe impacts of the COVID-19 strain.

Amid these plays, US 10-year Treasury yields dropped 3.7 basis points (bps) to 1.40% while the Wall Street benchmarks marked another negative day, despite an upbeat start.

Looking forward, a lack of major data/events and the pre-NFP trading lull may bore markets. However, Australian trade numbers and US second-tier job reports may entertain traders, not to forget Omicron headlines.

Technical analysis

Failures to cross a fortnight-long resistance line, around 0.6860, join a steady RSI line to favor the continuation of the bearish trend. Adding to the upside filters the previous support line from November 12 and 50% Fibonacci retracement of latest fall from mid-November, near 0.6930 at the latest.

On the flip side, a weekly horizontal line near 0.6800 can entertain short-term sellers ahead of the yearly low of 0.6772. In a case where NZD/USD bears conquer the yearly bottom, tops marked in July and October 2020 surrounding 0.6725-15 will gain major attention.