NZD/USD bounces back towards 0.7200 on USD pullback

• NZD/USD consolidates Thursday’s losses, refreshes intraday high of late.
• Inflation-linked market fears fade amid sentiment-positive headlines from US, China.
• NZ PM unveils “traffic light” pattern on easing virus-led activity controls, aims 90% covid jabbing.
• US PMIs are the key amid reflation woes, risk catalysts are important too.

NZD/USD recovers the heaviest daily fall in 12 days around 0.7170 during early Friday. The kiwi pair refreshes a four-month high the previous day before reversing from 0.7218, ultimately printing the negative daily closing.

While inflation woes could be held responsible for the quote’s pullback on Thursday, the recent recovery seems to track headlines concerning the US stimulus and China’s Evergrande, not to forget easing COVID-19 restrictions at home.

Although New York Federal Reserve (Fed) President John Williams follows Fed Governor Christopher Waller to highlight the inflation fears, recently mixed data from the US, mainly relating to the jobs and housing, probe the US bond bears. Before that, Federal Reserve Governor Randal Quarles and Cleveland Fed President Loretta Mester highlighted inflation fears and propelled the US 10-year Treasury yields to the highest in five months, up 1.9 basis points (bps) near 1.694% at the latest.

Evergrande also shares the good news of paying $83.5 million bond coupon, per China’s Securities Times. On the same line was the South China Morning Post (SCMP) that tried to soothe the Evergrande-led jitters while citing the company filing with the Hong Kong stock exchange. “China Evergrande rival Hopson Development Holdings Limited, which had sought to buy half of the embattled developer’s property management unit, still considers the purchase agreement ‘legally binding’ despite Evergrande rescinding the sale on October 12,” said SCMP.

At home, New Zealand (NZ) PM Jacinda Ardern announced the “traffic light” system to ease the virus-led activity restrictions. The national leader also revealed the 90% vaccination target, as well as around $1.0 billion support measures during early Friday.

Read: NZ PM Ardern reveals traffic light system with 90% vaccination target

While the S&:P 500 Futures portray a shift in the market sentiment, dragging the US Dollar Index (DXY) down, the US 10-year Treasury yields remain firmer around the key hurdle of 1.70%, a break of which triggered US dollar rally in the past.

Looking forward, the risk catalysts will be important ahead of the US preliminary PMI for October.

Technical analysis

NZD/USD teases bull cross on the daily chart but overbought RSI challenges further upside around 61.8% Fibonacci retracement (Fibo.) of February-August downturn at 0.7210, suggesting a pullback before the next move up.

While a daily closing below September’s high surrounding 0.7170 directs the quote towards 50% Fibo. level near 0.7135, any further weakness will be challenged by an eight-month-old previous resistance line, close to 0.7080 by the press time.