NZD/USD braces for 0.7010 key hurdle with eyes on RBNZ

NZD/USD wavers inside a weekly trading range between 0.6975 and 0.6915, around 0.6970 during early Wednesday morning in Asia.

The kiwi pair buyers struggle to justify the US dollar recovery, not to forget upbeat equities, as traders turn cautious ahead of the all-important interest rate decision by the Reserve Bank of New Zealand (RBNZ). However, bullish expectations from the RBNZ policymakers keep the quote on the upper end of the latest trading range.

Recently challenging the bulls could be the Quarterly Survey of Business Opinion (QSBO) from the New Zealand Institute of Economic Research (NZIER). As per the QSBO details, the Business Confidence drops to -11% vs +7% in Q3 whereas the Capacity Utilization came at 96.1% as compared to 94.9% in Q2. It should be noted that New Zealand’s bi-monthly GDT Price Index eased below 1.0% prior and 0.7.0% market forecast to 0.0% at the latest, magnifying challenges for the RBNZ rate change.

New Zealand (NZ) Prime Minister (PM) Jacinda Ardern’s cautious easing of the virus-led activity restrictions from Auckland and the steady upside in the covid daily infections, also outside the capital, question the RBNZ rate hike expected, also the NZD/USD bulls.

However, the latest inflation and employment conditions and the Pacific nation remains supportive of the RBNZ’s long due action. More importantly, the concern over housing prices adds to the clues for the widely chattered rate lift, the first among the key central banks.

On the other hand, the Fed tapering tantrum remains on the table but the rate hike is far even as the US PMIs, namely the ISM Services PMI and Markit Services PMI, for September remained firm. It’s worth noting that the US trade deficit widened to the record in August, per the recent readings.

Talking about the sentiment, equities are on a firmer footing amid hopes of US stimulus and raising the debt ceiling. Recently, the global rating giant Moody kept the US credit rating unchanged at AAA and backed concerns that the US debt limit will be raised soon to avoid the empty-pocket situation.

Challenging the market optimism is the fresh Sino-American trade tussles and geopolitical tensions, recently over Taiwan, as well as fears of policymakers’ inability to deliver the much-awaited stimulus and debt limit extension.

Amid these plays, Wall Street benchmarks performed well by the end of Tuesday’s North American session even as the US 10-year Treasury yields and the US Dollar Index (DXY) remained firm.

Moving on, the NZD/USD pair may witness lackluster moves ahead of the RBNZ interest rate decision, expected 0.5% versus 0.25% prior. However, a disappointment will have a larger repercussion than a rate hike and hence traders should be cautious.

Read: Reserve Bank of New Zealand Preview: Set for the first lift-off since the pandemic

In addition to the RBNZ, risk catalysts and US ADP Employment Change for September, the early signal for Friday’s US Nonfarm Payrolls (NFP) should be watched closely for fresh impulse.

Read: US ADP Employment Change September Preview: Yes, its all about the Fed

Technical analysis

NZD/USD buyers face rejection around 0.6975, comprising 10-DMA, on the way to the 0.7010 key hurdle, including 50-DMA and a three-week-old descending resistance line. In a case where the quote manages to cross the 0.7010 resistance, its run-up towards the late September’s swing high near the 0.7100 threshold can’t be ruled out.

On the contrary, a horizontal area encompassing multiple levels marked since June between 0.6925 and 0.6915 restricts short-term NZD/USD downside before directing the bears toward a 0.6860-55 support-zone that clubs August 20 high and the latest swing lows.

NZD/USD: Daily chart

Trend: Further upside expected