NZD/USD: Bears flirt with seven-month low above 0.6900 amid broad USD strength

• NZD/USD sellers take a breather after the heaviest weekly fall since September 2020.
• Fed’s Bullard offered extra strength to USD’s post-Fed upside.
• West versus China story, fears of Delta variant add to the risk-off mood.
• Aussie Retail Sales, PBOC can offer intermediate moves, US Treasury yields, inflation expectations are the key to watch.

NZD/USD struggles to overcome the yearly bottom, taking rounds to 0.6930-40, amid the early Asian session on Monday. In doing so, the kiwi pair remains indecisive after posting the heaviest weekly drop in nine months, not to forget dropping for the third consecutive weeks, to test the lowest levels since November 2020.

Fed fuelled DXY the most in three months…

The US Federal Reserve’s (Fed) much-awaited June meeting played the key role in portraying the biggest US dollar index (DXY) run-up since March. After initially cheering the Fed’s upwardly revised dot-plot and economic forecasts, suggesting fears ahead, the greenback gauge benefited from the rate hike comments by the St. Louis Fed President James Bullard. In his latest comments, Fed’s Bullard said, he sees a case for rates to rise next year.

“St Louis Fed President Bullard was the first post-FOMC meeting speaker and wasted no time in advocating his recent more hawkish views. He said he forecast core PCE at 3.0% for the end of this year and 2.5% for the end of 2022, which he believes would justify a rate tightening cycle starting late next year,” per the Australia and New Zealand Banking Group (ANZ).

Despite being a non-voting Fed member, the comments were the first from the US banker and hence triggered the rush to risk-safety, which in turn put a bid under the USD. That said, the DXY refreshed the highest levels since early April whereas the US 10-year Treasury yields dropped 6.8 basis points to 1.44%, the pre-Fed meeting levels.

It’s worth noting that the escalation in the tussles between the Western friends, including the US, the UK and Australia, with China adds to the downside pressure on the NZD/USD prices as Auckland also witnesses souring relations with its top-tier customer of late. Additionally, fears of the Delta variant of the coronavirus (COVID-19) and sluggish growth over talks of US President Joe Biden’s infrastructure spending plan also weigh on the risk appetite and to Antipodeans.

Looking forward, a lack of major data/events at home requires NZD/USD traders to keep their eyes on Australia’s preliminary Retail Sales for May, 0.7% expected versus 1.1% prior, as well as monetary policy meeting of the People’s Bank of China (PBOC), no changes expected, for fresh impulse. Although both these events are less likely to reverse the current downtrend of the pair, moves of the US Treasury yields and the US dollar should be watched closely for clear direction.

Technical analysis

A daily close below the year’s bottom surrounding 0.6945-40 enables the NZD/USD bears to aim for September 2020 tops surrounding 0.6800. Meanwhile, corrective pullback needs to cross the 0.7000 threshold for short-term life ahead of confronting the 200-day SMA level of 0.7042 for further ruling.