NZD/USD consolidates losses at two-month low above 0.7100 amid pre-Fed trading lull

NZD/USD stays sidelined around 0.7120, recently easing, as bears take a breather around a two-month low during the early Asian session on Wednesday. The kiwi pair portrayed the double whammy of mildly bid US dollar and downbeat data at home to refresh the multi-day low. However, the pre-Fed caution seems to probe the quote’s latest moves.

US dollar index (DXY) jumped to the fresh high since May 14 before easing to 90.52 by the end of Tuesday’s North American session. In doing so, the greenback gauge versus the six major currencies prints mild gains, benefiting from the market’s rush to risk safety ahead of the Federal Open Market Committee (FOMC) meeting.

A mixed play of May’s US Retail Sales and Producer Price Index (PPI) could be traced as the latest catalyst backing the reflation fears. While Retail Sales dropped -1.3% versus -0.8% expected the PPI rose more than 6.3% forecast to 6.6% YoY.

Also contributing to the NZD/USD weakness could be New Zealand’s (NZ) downbeat GDT Price Index, -1.3% versus -0.1% expected and -0.9% prior. It’s worth noting that Whole Milk Powder (WMP) also registered a fall of 1.8% during the last 15 days’ tally. Also, downbeat prints of NZ Current Account-GDP ratio and Current Account Balance for Q1 2021 kept the pair sellers hopeful of late.

Amid these plays, US stocks posted mild losses and the Treasury yields also snapped a two-day uptrend amid cautious sentiment. Additionally, escalating tension between the Western economies and China also weighs on the NZD/USD prices as Beijing is Auckland’s largest customer. Furthermore, chatters that the RBNZ adds house price control measures to its tool, hesitantly though, exert additional downside pressure on the Kiwi pair.

Moving on, China’s Retail Sales and Industrial Production, preceded by second-tier data from Australia, can offer intermediate moves to the NZD/USD pair amid a likely sluggish day heading into the Fed’s meeting.

“We expect the Fed’s near-term inflation profile and dot plot will be revised up. However, the Fed is seeking a full recovery in jobs and we therefore expect Chairman Powell will continue to argue that the rise in inflation is transitory and that the Fed is well equipped to respond to higher inflation if necessary. The market will also be sensitive to any advancement in the Fed’s thoughts around tapering,” said analysts at the Australia and New Zealand Banking Group (ANZ).

Read: Fed Interest Rate Decision Preview: Chair Powell will determine market response

Technical analysis

NZD/USD remains vulnerable to the further downside amid sustained trading below 100-day SMA, around 0.7180. That said, lows marked during January and early May highlight the 0.7100 threshold as the nearby key support ahead of the 200-day SMA surrounding 0.7040.