NZD/USD: On the back foot below 0.7200 amid downbeat market sentiment
|- NZD/USD remains depressed following the heaviest drop in over two weeks.
- Chatters over US President Biden’s proposal for higher capital gains drowned risks.
- Covid, geopolitical headlines also heavy the sentiment, US data, ECB had a little fanfare.
- New Zealand Credit Card Spending, Aussie PMI will decorate calendar, risk catalyst will be the key.
NZD/USD defends 0.7150, despite fading bounce off three-day low, while taking rounds to 0.7160-65 amid the initial Asian trading session on Friday. The kiwi pair dropped the most in 12 days on Thursday as risk aversion roiled market sentiment after US President Joe Biden proposed higher capital gains for wealthier Americans.
Investors’ fears weigh on kiwi…
Although there were no major announcements from New Zealand the previous day, NZD/USD dropped heavily as risks got sold amid news that US President Biden proposed a 40% capital gain tax for citizens earning over $1.0 million. While the news was widely anticipated for the future its sudden announcement shocked markets even the Democratic Party member suggests the fund’s usage for an upcoming stimulus package that will include free college education and paid family leave.
In addition to the risk-negative news from the US, the coronavirus (COVID-19) woes from India and Japan as well as the Aussie-China and Russia-Ukraine tussles also weighed on the market sentiment. Recently, news that three rockets hit Baghdad’s airport base housing the US troops joined the geopolitical headlines.
Amid these plays, Wall Street failed to keep Wednesday’s gain while the US 10-year Treasury yield remains pressured. Further, the US dollar index (DXY) benefited from the risk-off mood. The US dollar gains could also be traced to upbeat prints of US Jobless Claims, Chicago Fed Manufacturing Index and a pullback in Existing Home Sales while the European Central Bank's (ECB) widely anticipated inaction passed unnoticed.
While the preliminary readings of Commonwealth Bank’s (CBA) Aussie activity figures for April will be an immediate catalyst for NZD/USD, New Zealand’s Credit Card Sales for March, prior -12.4%, should be watched closely for any recovery. However, risk news will be the key to watch.
Technical analysis
Despite the latest weakness, NZD/USD is yet to offer a daily closing below the 0.7150-55 support confluence, comprising 50-day and 100-day SMA, which in turn keeps the kiwi pair buyers hopeful.
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