NZD/USD drops back to 0.7000 on Fed Chair Powell’s tapering hints

• NZD/USD seesaws around monthly low after Fed’s Powell erodes previous gain.
• Hawkish Powell propels USD versus initial weakness on Fed’s lack of clarity over tapering and rate hike.
• US Treasury yields closed on the back foot, Wall Street prints gains amid a gap between taper and rate lift.
• China’s Evergrande, US PMIs become the key catalysts to watch for fresh impulse.

NZD/USD bears flirt with the recently flashed monthly low around 0.7000 during early Thursday morning in Asia, after a volatile US session close due to the Fed showdown.

The US Federal Reserve’s (Fed) inability to clarify the tapering timeline and rate lift, not forget revising down the 2021 GDP forecast, weighed on the US Treasury yields and the US Dollar Index (DXY) before Chairman Jerome Powell surprised markets with his hawkish style. The Fed Boss Powell not only hints at the positive conditions matching for the consolidation of the asset purchase but also signaled the start of taper as soon as the next meeting, even if on good employment data not needing too strong figures.

On rates, the US central bank matches market expectations of keeping the Fed rate unchanged at 0.25% but the policymakers are divided over the rate hike, now expecting a start from either 2022 or 2023 versus the previous support for 2023. The same hints at the hawkish view of the policymakers.

However, the equities remained firmer as markets seem to have taken the Fed view with a pinch of salt because the rate hikes aren’t imminent following the end of the taper.

Additionally, China Communist Party’s (CCP) deal with the struggling real-estate player Evergrande to avoid default and safeguard the monetary system follows the People’s Bank of China’s (PBOC) heavy liquidity injection also favor the market sentiment.

Amid these plays, the US 10-year Treasury yields dropped two basis points (bps) to 1.30% while the key Wall Street benchmarks gained around 1.0% each by the end of Wednesday’s North American session.

Moving on, headlines from China and preliminary readings of the US Markit PMIs for September may entertain NZD/USD traders going forward. However, the bears seem to be tired of late and hence any corrective pullback can’t be ruled out on positive factors.

Technical analysis

A daily closing below 50-DMA level surrounding 0.7010 needs validation from monthly horizontal support near 0.6985 for the further downside of the NZD/USD prices. In absence of which, early September lows near 0.7070-75 my return to the chart considering the quote’s hesitant fall in the last few days, as perceived by the RSI conditions.