NZD/USD bounces off three-month low but keeps eyes on yearly bottom of 0.6805

NZD/USD sellers take a breather following the south-run to smash September’s bottom and test the lowest levels in three months. That said, the Kiwi pair stays sidelined around 0.6860 by the press time of early Friday morning in Asia.

The US Thanksgiving Day holiday offered no respite to the NZD/USD prices as the quote dropped for the fifth consecutive day on its way to register the biggest weekly fall since mid-August.

While tracing the catalysts, the fresh covid concerns and the market’s dislike for the Reserve Bank of New Zealand’s (RBNZ) 0.25% rate hike could be linked. Also on the negative side were hawkish statements from the Fed officials and Fed Minutes, before the US markets closed for the holiday.

Recently, RBNZ Assistant Governor Christian Hawkesby crossed wires via an interview with Bloomberg TV and tried to defend the tighter monetary policy despite citing downside risk from covid.

Read: RBNZ's Hawkesby: We need to continue removing stimulus

It’s worth noting that the Sino-American tussles slowly escalates following the virtual meeting between US President Joe Biden and his Chinese counterpart Xi Jinping. While China’s inability to perform the phase one deal terms sparked initial fears of another round of the US-China tussles, issues relating to Vietnam and Taiwan recently added fuel to the fire. The US invites Taiwan to one of its home events and keeps its warships moving in the troubled water surrounding the Asian nation, which in turn hints at political jitters with Beijing. Given China’s close trade proximity to New Zealand, as well as the status of the world’s largest commodity user, such events challenge the Antipodeans.

Additionally, the recent jump in the covid numbers in Europe and a steady rise in infections in the UK signals the returns of the pandemic and renews fears of lockdowns that crippled the global economy a few months back.

Amid these plays, Gilts and Bunds were mildly offered while the stocks in Europe and the UK printed softer gains amid a sluggish day. However, gold remained mostly unchanged and the NZD/USD kept declining.

Looking forward, a light calendar may not entertain the momentum traders but the return of the US traders and Aussie Retail Sales will be important for the NZD/USD. Above all, the RBNZ-led disappointment may weigh on the quote while covid woes, US-China tension and fears of the Fed action can exert additional downside pressure on the pair.

Technical analysis

Having conquered a 14-month-old support line, NZD/USD bears smashed 61.8% Fibonacci retracement (Fibo.) of September 2020 to February 2021 upside, which in turn suggests the quote’s further weakness towards the yearly bottom of 0.6805. Alternatively, 61.8% Fibonacci retracement level of 0.6875 and the previous support line near 0.6900 guards short-term NZD/USD upside.