NZD/USD defends 0.6500 on NZ holiday as China news favor bulls, US inflation eyed

• NZD/USD consolidates recent losses after reversing from five-week high.
• Friday’s US NFP, comments from Fed’s Mester favored greenback bulls.
• New Zealand markets are off due to Queen’s Birthday, US CPI, RBA and ECB are this week’s key events.

NZD/USD picks up bids to pare recent losses around 0.6510 during Monday’s quiet Asian morning. The Kiwi pair’s latest gains could be linked to upbeat news concerning China, as well as an off in the New Zealand market.

News from China’s local media, suggesting a further easing of activity controls on Beijing, seems to underpin the latest rebound in NZD/USD prices. Beijing is up for further easing of covid-linked activity controls from Monday after witnessing a sustained fall in the virus numbers, following Shanghai’s ease of lockdown measures late in May. “Dine-in service in Beijing will resume on Monday, except for the Fengtai district and some parts of the Changping district, the Beijing Daily said. Restaurants and bars have been restricted to takeaway since early May,” reports Reuters.

On the same line are Sunday’s risk-positive comments from US Commerce Secretary Gina Raimondo. The diplomat said, per Reuters, “President Joe Biden has asked his team to look at the option of lifting some tariffs on China that were put into place by former President Donald Trump, to combat the current high inflation.”

It’s worth noting, however, that fears of the Fed’s aggression keep NZD/USD prices in check, especially after Friday’s surprise from the US employment data and hawkish Fedspeak. US Nonfarm Payrolls (NFP) came in 390K for May, more than 325K expected but lesser than the upwardly revised 428K previous readouts. Further, the Unemployment Rate remained unchanged at 3.6% versus expectations of a slight decline to 3.5%. Additionally, the US ISM Services PMI fell to 55.9 in May, versus 56.4 market consensus and 57.1 flashed in April.

Elsewhere, Fed’s Mester said, per Reuters, “The one problem that the Fed has is inflation.” The policymakers also added that the risks of a recession have gone up, said the news. Loretta Mester also mentioned that she supports 50 bps increases in June and July while not ruling it out in the September meeting, but it would be data-dependent. She said that if she sees compelling evidence of lower inflation, then a 25 bps hike in September would be appropriate.

Against this backdrop, Wall Street benchmarks closed in the red whereas the US 10-year Treasury yields posted the first weekly gain in three. That said, S&P 500 Futures remain indecisive around 4,100 by the press time.

It should be observed that the Reserve Bank of New Zealand (RBNZ) has already announced two 125 bps worth of rate hikes during 2022 and hence may wait for the Fed’s next step, which in turn highlights this week’s inflation data from the US and China for fresh impulse. Additionally, monetary policy meeting by the Reserve Bank of Australia (RBA) will also be important for NZD/USD due to New Zealand’s trade ties with Australia.

Technical analysis

NZD/USD portrays traders’ indecision unless crossing the area between the 50-day EMA and the 21-day EMA, respectively around 0.6550 and 0.6480. Given the recently sluggish RSI and receding bullish bias of MACD, sellers are likely to retake control.