NZD/USD: Bears eye 0.6700 key support amid risk-off mood

• NZD/USD holds lower grounds at 13-month low, after five-week downtrend.
• US dollar shrugged off NFP surprise as upbeat Unemployment Rate favored Fed rate hike concerns.
• Omicron concerns add to risk-off mood, China Premier Li Keqiang promised RRR cut.
• A light calendar emphasizes risk catalysts are the key to watch for fresh impulse.

NZD/USD licks its wounds around 2021 bottom, defending 0.6750 during early Monday morning in Asia.

The kiwi pair dropped the most in over a week during Friday even as the US Nonfarm Payrolls (NFP) surprised markets with the yearly low. The reason could be linked to the heavy fall in the Unemployment Rate, as well as the market’s fears of Omicron and China-linked news.

US NFP disappointed labor market optimists with 210K figures versus 550K expected. However, a 0.4% fall in Unemployment Rate to 4.2% and Average Hourly Earnings matched the 4.8% YoY forecast. Following the data, the US dollar offered a knee-jerk reaction before resuming the north-run as Fed fund futures rallied.

Adding to the greenback’s strength was sour sentiment due to the spread of the South African covid variant, dubbed as Omicron, in the developed nations. After initially hitting Europe and the UK, the virus strain tightens its grip towards reaching the key global nations like the US and China. It should be noted, however, that global scientists are optimistic over the cure. Recently, US top Medical Officer Anthony Fauci backed Pfizer’s drug to be effective against Omicron while the news of chewing gum to stop the virus spread and the UK’s push for treatment also keeps traders hopeful.

Elsewhere, news that China’s Premier Keqiang promised a Reserve Requirement Ratio (RRR) cut to the International Monetary Fund (IMF), without specifying the date, per the ANZ, also weigh on the NZD/USD prices as China is New Zealand’s biggest customer. On the same line were the recent headlines from the Wall Street Journal (WSJ) saying, “China wants to put its first Atlantic military base in Equatorial Guinea, U.S. intelligence shows. The prospect has set off alarm bells in Washington.”

Amid these plays, Wall Street closed negative and the US 10-year Treasury yields slumped to the lowest since late September while prices of gold rallied amid sour sentiment.

Above all, the NZD/USD fades the Reserve Bank of New Zealand (RBNZ)-led charm as the Fed is up for monetary policy tightening and cutting the carry trade opportunities that earlier favored the Kiwi bulls.

That said, any improvement in the virus news can offer an intermediate bounce to the quote after the recent heavy selling pressure. Additionally, fears of firmer inflation data in the US also propel the greenback and hence Friday’s US Consumer Price Index (CPI) will be the key to watch ahead of next week’s Federal Reserve (Fed) monetary policy meeting. For today, an absence of major data/events highlights the qualitative catalysts for direction.

Technical analysis

NZD/USD dropped to a 13-month low and provided a weekly closing below 200-week SMA. Also favoring sellers are the MACD signals hitting late August levels. Though, a descending trend line from March, around 0.6700 becomes a tough nut to crack for the Kiwi pair bears are the RSI conditions are oversold, suggesting a corrective pullback from the next possible support.

Meanwhile, recovery moves remain elusive until crossing the 10-DMA and a monthly resistance line, respectively around 0.6850 and 0.6900.