NZD/USD approaches 0.6800 amid USD pullback, China PMI, Ukraine in focus

• NZD/USD grinds higher around three-day top, pokes February high.
• Market sentiment dwindles as Russia continues to bombard Ukraine, peace talks extended through the week without any strong results.
• US dollar tracks downbeat Treasury yields, Wall Street closed mixed.
• China’s official PMIs will be important in Asia, US ISM PMI, Biden’s speech and risk catalysts will be crucial afterward.

NZD/USD stays on the front foot around 0.6775, taking rounds to a three-day high marked the previous day.

The kiwi pair began the week’s trading with a downside gap but the US dollar weakness and hawkish RBNZ that contrasts the recently softer concerns over Fed seemed to have helped the pair to begin Tuesday’s Asian session on the firmer note.

Despite dashing a 0.50% rate hike, the Reserve Bank of New Zealand (RBNZ) kept the hawkish tone intact during the last week, suggesting further interest rate lifts on the cards. That said, the latest comments were from RBNZ Chief Economist Yuong Ha mentioned, “50 bps moves are a possibility if needed.”

On the other hand, CME’s FedWatch Tool marked nearly 5.0% probabilities of a 0.50% Fed rate hike in March, versus more than 50% before a few days. While considering this, Atlanta Fed President Raphael Bostic said on Monday, “Today I am in favor of a 25 bps move at March meeting."

Elsewhere, negotiations between Russia and Ukraine came and go without any core results, as expected. The diplomats assured further talks during this week but Moscow isn’t ready to step back as Russian troops bombard civilian buildings in Kyiv. On the other hand, Ukraine President Zelenskyy was quoted by Reuters’ reporter Phil Stewart to consider a no-fly zone for Russian missiles, planes and helicopters. The same would push the US to jump into the battle, as signaled earlier by the White House (WH). However, the WH press secretary Jen Psaki on Monday ruled out the idea of using US troops to create a no-fly zone over Ukraine amid the Russian invasion of the eastern European country.

Amid these plays, Wall Street closed mixed and the US 10-year Treasury yields dropped the most since early December 2021, dragging the US Dollar Index (DXY) down.

Moving on, NZD/USD traders will take clues from China’s NBS Manufacturing PMI and Non-Manufacturing PMI for February for fresh impulse. However, risk catalysts will be more important for clear directions. It’s worth noting that China’s headlines NBS Manufacturing PMI are likely to drop to 49.9 from 50.1, which in turn could allow the pair to consolidate recent gains.

In addition to the China data and Ukraine-Russia headlines, the US ISM Manufacturing PMI for February and US President Joe Biden’s State Of The Union (SOTU) speech on Tuesday will be important as Biden is up for discussing inflation in the same.

Read: Russian invasion tests central bankers this week

Technical analysis

A clear upside break of a descending resistance line from mid-November, now support around 0.6745, directs NZD/USD buyers towards February’s peak of 0.6810. Though, the 100-DMA level surrounding 0.6850 may challenge the pair’s further advances.