NZD/USD retreats towards 0.6200 as New Zealand trade deficit widens in June

• NZD/USD fades corrective pullback above 0.6200 on mostly downbeat NZ trade data.
• New Zealand Trade Balance dropped to $-10.51B YoY versus $-9.56B prior in June.
• Market sentiment sours as fears of recession, central bank aggression renew.
• Risk catalysts are the key for fresh impulse, ECB in focus.

NZD/USD remains pressured towards 0.6200 as New Zealand (NZ) trade numbers hint at a wider deficit for June, published during Thursday’s Asian session. Adding to the Kiwi pair’s woes were the fresh risk-off mood and a lack of major data/events at home. However, hawkish concerns surrounding the Reserve Bank of New Zealand (RBNZ) appear to defend the bulls.

NZ Trade Balance dropped to $10.51B YoY from $9.56B (revised) prior whereas the monthly figures also marked a deficit of $701 million versus the $195M previous surplus. Further details hint at the reduction in Exports to $6.42B from $6.87B prior while Imports improved to $7.12B versus 6.68B prior.

Other than the recently released NZ trade numbers, the market’s risk-aversion also exerts downside pressure on the NZD/USD prices. Among the key challenges to sentiment are the fresh fears of recession emanating from Europe and strong inflation data from the UK, as well as from Canada. Also weighing on the Kiwi pair could be the Sino-American tensions and China’s covid woes.

Russian President Vladimir Putin mentioned that they are yet to see in which condition the equipment for Nord Stream 1 will be after returning from maintenance, per Reuters. However, European Commission President Ursula von der Leyen said on Wednesday that it was a likely scenario that there could be a full cut-off of Russian gas, as reported by Reuters. It should be noted that the fears over gas might have pushed the International Monetary Fund (IMF) to cut its growth forecasts for Germany. That said, the IMF lowered its growth forecasts for Germany to 1.2% for 2002 and 0.8% for 2023. In its previous forecast, the IMF was expecting the German economy to grow by 2% in both years. Also signaling more pain for the bloc, as well as for markets, were political jitters in Italy. That said, Prime Minister Mario Draghi won a confidence motion, but as three major cotillion parties boycotted the vote and hence Mr. Draghi may again resign and trigger early elections in the nation.

Elsewhere, Eurozone Consumer Confidence slumped to a record low and the UK’s inflation refreshed an all-time high while Canada’s Consumer Price Index (CPI) also rose in June.

Furthermore, the fresh US-China tussles over Taiwan and China’s highest covid count in two months add to the risk-off mood. Additionally, Google was the first to report a two-week halt in recruitment while Ford announced plans to cut around 8,000 jobs.

On the contrary, the hawkish hopes from the RBNZ keep the NZD/USD buyers hopeful. The Analysts at ANZ Bank who are anticipating a 50 bps hike said the possibility that the RBNZ hikes by 75bps in August cannot be ruled out. ''The second quarter labor market statistics on August 3 will be watched very closely.''

Against this backdrop, Wall Street managed to close on the positive side despite the latest pullback while the US 10-year Treasury yields paused a two-day uptrend around 3.03%.

Looking forward, NZD/USD traders may witness further selling amid sour sentiment ahead of the monetary policy meeting of the European Central Bank (ECB).

Technical analysis

NZD/USD pullback remains elusive unless staying beyond the 21-DMA hurdle surrounding 0.6200.