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Supply Chain Risk

NZD/USD sellers attack the key 0.6700 support amid risk-off mood, Fed eyed

  • NZD/USD remains pressured around yearly bottom following two consecutive daily declines.
  • Market sentiment worsened on pre-Fed, inflation and Ukraine concerns.
  • NZ PM Ardern refrained from Omicron-led lockdowns but verdict on traffic lights awaited.
  • FOMC’s rate hike hints, New Zealand CPI are the week’s key events.

NZD/USD portrays the market’s sour mood around 0.6710 during early Monday morning in Asia, following the heaviest weekly fall in two months.

In doing so, the kiwi pair flirts with the year 2021 bottom, flashed in December, as traders await crucial events scheduled for release during the week. Other than the market fears concerning this week’s Federal Open Market Committee (FOMC) and New Zealand’s Q4 Consumer Price Index (CPI), up for publication on Wednesday and Thursday, geopolitical concerns relating to Ukraine-Russia tussles also weigh on NZD/USD prices.

Although the last week’s US data was mostly mixed, the latest Fedspeak has been hawkish, suggesting that the US central bank is on the way to chart March’s rate hike on Wednesday. Adding to the bullish bias were the chatters concerning Omicron-linked supply chain damage and inflation woes. It’s worth noting that comments from US President Joe Biden and International Monetary Fund Managing Director Kristalina Georgieva were both in support of the Fed’s hawkish bias, which in turn reinforced Fed rate hike concerns.

At home, New Zealand Prime Minister (PM) Jacinda Ardern will decide on the nation’s traffic light system and has already rejected lockdown fears. However, surging cases in Auckland do pose a serious threat to the working styles as New Zealand will witness Omicron spread.

Elsewhere, geopolitical tussles between Russia and Ukraine escalate as Moscov braces for Keiv’s invasion. Recently, UK’s Deputy Prime Minister Dominic Raab told the BBC’s Sunday Morning program that there was “a very serious risk” of invasion but there would be “severe economic consequences”, including sanctions if Russia took that step.

Amid these plays, the US Treasury yields and equities were down but commodities had a mixed performance, with crude gaining from supply outage fears and gold from softer yields. The same risk-off mood pressured Antipodeans towards the last year’s low.

Moving on, New Zealand has very few important data to release ahead of Thursday’s NZ Q4 CPI, expected 5.6% versus 4.9% prior. However, monthly PMIs from the rest of the world and Fed meetings will be crucial to watch before then. Among them, the Fed’s verdict on rate hike and balance sheet normalization, which is highly expected, becomes critical.

Read: Fed Preview: Three ways Powell could out-dove markets, dealing a blow to the dollar

Technical analysis

Unless breaking the weekly resistance line near 0.6755, NZD/USD prices are likely to conquer the year 2021 bottom surrounding 0.6700, which in turn open doors for the pair’s further declines towards the 61.8% Fibonacci Expansion (FE) of the pair’s moves between November 15 and December 24, near 0.6650.

 

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