NZD/USD: Bulls attack 100/200 SMA confluence on softer USD, focus on China, US inflation

• NZD/USD grinds higher around weekly top as the key day begins.
• Powell’s Testimony weighed down the USD due to cautious comments over supply crunch, balance sheet normalization.
• US Treasury yields drops for the second day, equities rose despite World Bank cut global growth forecasts for 2022.
• Inflation figures from China, US will be crucial for fresh impulse.

NZD/USD stays on the way to 0.6800, taking rounds to weekly top surrounding 0.6785 during early Wednesday morning in Asia.

The kiwi pair witnessed a notable buying pressure amid a broad US dollar weakness, as well as the market’s rush towards the riskier assets, following the comments of Fed Chair Jerome Powell during testimony before the Senate Banking Committee. In doing so, the NZD/USD prices ignored downbeat growth forecasts from the World Bank (WB). However, the cautious sentiment ahead of the key inflation figures from China and the US, for December, seems to probe the bulls of late.

Although Fed’s Powell showed readiness to hike interest rates to stop inflation from being entrenched, concerns over supply-demand mismatch and balance-sheet runoff weighed down the US dollar. The Fed Boss said that the balance sheet runoff could happen "perhaps later in the year," while also expecting that the supply crunch will ease somewhat and the economic impact of the Omicron variant will be short-lived.

That said, the US Dollar Index (DXY) dropped around 0.35% to poke December’s low around 95.60 by the end of Tuesday’s North American session.

Elsewhere, the World Bank cut the global growth forecast for 2022 from 4.3% previous forecasts to 4.1%. The Washington-based institute also trimmed China’s 2022 GDP expectations to 5.1% versus 5.4% earlier consensus.

Talking about data, US NFIB Business Optimism Index rose past 98.4 to 98.9 for December while IBD/TIPP Economic Optimism for January eased to 44.7 versus 48.4 previous readouts.

Amid these plays, the Wall Street benchmarks cheered the second consecutive daily fall in the US 10-year Treasury yields.

Moving on, New Zealand’s ANZ Commodity Price Index for December may offer immediate direction, expected 3.4% versus 2.8% prior but major attention will be given to Consumer Price Index (CPI) for the said month from China and the US. Forecasts suggest China’s headline CPI ease from 2.3% to 1.8% YoY while the Producer Price Index (PPI) may witness ease from 12.9% to 11.1% for the said month, suggesting a pullback into the NZD/USD prices. However, anticipated strength in the US CPI for December, to 7.0% YoY versus 6.8% prior, will be a crucial number to watch as higher inflation can renew the US dollar buying and weigh on the Kiwi prices.

Read: US Inflation Preview: Dizzying heights of 7% would cement a March hike, supercharge the dollar

Technical analysis

NZD/USD battles a convergence of the 100 and 200-SMA around 0.6790-95, following a bounce off the monthly horizontal support near 0.6730 the previous day. Given the bullish MACD signals and firmer RSI, not overbought, the Kiwi pair is likely to cross the immediate hurdle to challenge a downward sloping resistance line from January 03, close to 0.6810. Should the NZD/USD bulls keep reins past 0.6810, then the prices will rise towards an area comprising multiple levels marked since September, around 0.6855-60.

Alternatively, a clear downside break of 0.6730 will highlight the 2021 bottom surrounding the 0.6700 threshold ahead of the 61.8% Fibonacci Expansion (FE) of the pair’s moves between November 15 and December 24, around 0.6650.