NZD/USD licks its wounds at 10-week low above 0.6000 on mixed RBNZ, Fed concerns ahead of US statistics

• NZD/USD picks up bids to pare weekly losses at multi-day low.
• Talks of Fed policy pivot supersede downbeat NZ data, RBNZ concerns and underpin latest Kiwi rebound.
• Bears stay hopeful amid China fears, cautious mood ahead of more clues for US inflation.

NZD/USD remains indecisive after refreshing a 2.5-month low, fading bounce off the multiple days to near 0.6015 by the press time of early Friday in Auckland. In doing so, the Kiwi pair struggles to justify dovish bias about the Federal Reserve (Fed) amid concerns about witnessing the Reserve Bank of New Zealand’s (RBNZ) inaction.

The latest Reuters Poll on RBNZ suggests New Zealand’s central bank holding the benchmark interest rates unchanged on August 16, as well as extending the inaction towards at least end-March 2024.

On the same line were downbeat data from New Zealand (NZ) for July as the Business NZ PMI dropped to 46.3 versus 49.4 expected and 47.5 prior whereas the Food Price Index slid to -0.5% MoM for the said month versus 2.1% market forecasts and 1.6% marked in June.

Talking about the US data, the headline inflation figure Consumer Price Index (CPI) for July matched market forecasts to reprint 0.2% MoM figures. However, the yearly CPI improved slower-than-expected 3.3% to 3.2% YoY for the said month, versus 3.0% previous readings, marking the first acceleration in the annual rate in 13 months.  Furthermore, the CPI ex Food & Energy, also known as the Core CPI, also flashed an unchanged 0.20% MoM figures while meeting market consensus but eased to 4.7% YoY compared to 4.8% marked in June and the expected numbers. It’s worth noting that the US Initial Jobless Claims rose to 248K for the week ended on August 04 versus 230K expected and 227K prior while Continuing Jobless Claims softened to 1.684M from 1.692M (revised), versus 1.71M market forecasts.

With the mostly downbeat US data, a slew of policymakers from the Federal Reserve (Fed) crossed wires while conveying the US central bank’s hard-earned victory on inflation. Even so, their tones appeared less convincing for doves and joined the risk-negative concerns about China to fuel the US Treasury bond yields.

That said, Philadelphia Federal Reserve Bank President Patrick Harker raised a toast to the Fed’s progress in its fight against inflation and was joined by Boston Federal Reserve President Susan Collins and Atlanta Federal Reserve Bank President Raphael Bostic to cheer the softer US CPI. However, San Francisco Fed President Daly turned down the cheers for their victory while saying, “There’s still more work to do.” 

Elsewhere, the fears of witnessing more geopolitical tussles between the West and China, mainly due to the US restriction on investment in China technology companies and the likely repeat of the measures by the UK and European Union, weighed on the sentiment. Further, the chatters about slower economic growth in top-tier economies and recession woes in China, Germany and the UK pushed back the US Dollar bears as well. Additionally, the New Zealand Security Intelligence Service (NZSIS) said in the annual report that the nation is aware of intelligence activity linked to China in and against the island nation and the Pacific region, which in turn flagged geopolitical fears about the Kiwi nation and weighed on the New Zealand Dollar (NZD).

With this, the NZD/USD lacks recovery momentum despite the mildly bid S&P500 Futures and a retreat in the US Treasury bond yields, as well as the US Dollar.

Looking ahead, the US Producer Price Index (PPI) for July will precede the first readings of the University of Michigan’s (UoM) Consumer Sentiment Index (CSI) for August to direct immediate NZD/USD moves. Also important will be the UoM 5-Year Consumer Inflation Expectations for the said month. Above all, the next week’s RBNZ and China news will be crucial to determine the quote’s further direction.

Technical analysis

Oversold RSI conditions join May’s low of 0.5985 to challenge NZD/USD bears. The pair’s recovery, however, needs validation from the monthly resistance line, around 0.6100 by the press time.