NZD/USD pauses two-day downtrend around 0.6350 with eyes on RBNZ, Fed Minutes

• NZD/USD stays defensive at one-week low ahead of the key events.
• New Zealand PPI grew more than forecast in Q2 but came in softer than previous.
• Economic fears surrounding China, concerns over Fed’s September rate hike exert downside pressure.
• RBNZ is likely to announce fourth consecutive 0.50% rate increase but bulls need more to retake control.

NZD/USD struggles to defend the latest bounce off the 100-DMA as it seesaws near 0.6350 heading into the key interest rate announcement by the Reserve Bank of New Zealand (RBNZ) early Wednesday in Asia. In doing so, the Kiwi pair justifies the market’s indecision as the Fed Minutes also highlight today as the key day in the calendar.

Recession woes join mixed data and anxiety ahead of September Federal Open Market Committee (FOMC) meeting weigh on the NZD/USD prices of late. However, firmer equities and the US dollar’s pullback ahead of the Fed Minutes seem to challenge the Kiwi pair sellers. On the same line could be New Zealand’s second quarter (Q2) Producer Price Index (PPI) data.

New Zealand’s PPI-Input rose past 2.2% expected to 3.1% in Q2 but stayed below 3.6% in previous readings. In the same way, the PPI-Output also crossed the 2.1% market forecasts with 2.4% QoQ figures while easing beneath the previous 2.6% prior.

On the other hand, China’s state planner announced multiple measures to fight back the recession woes after downbeat data and the failure of the People’s Bank of China’s (PBOC) rate cut to impress traders. Also, Washington Post (WaPo) mentioned that Chinese authorities ordered factories to suspend production in several major manufacturing regions to preserve electricity as the country faces the worst heat wave in six decades.

It should be noted that the US Dollar Index (DXY) refreshed its three-week high before reversing from 106.94. The greenback’s gauge versus six major currencies previously benefited from the flight to safety before the firmer equities and consolidation ahead of FOMC Minutes joined mixed data to weigh on the quote.

That said, US Industrial Production grew 0.6% in July versus 0.3% expected and upwardly revised 0.0% prior whereas Building Permits also increased to 1.674M MoM during the stated month versus 1.656 market expectations and 1.696M previous readings. It should be noted that the Housing Starts dropped to 1.446M from 1.599M prior and 1.54M expected.

While portraying the mood, Wall Street managed to close on the positive side, despite retreating by the end of the day. That said, the US 10-year Treasury yields snapped a two-day downtrend by regaining 2.80% at the latest.

Looking forward, NZD/USD traders will pay attention to the RBNZ’s announcement as New Zealand’s central bank is up for the seventh back-to-back increase in its benchmark interest rate, from 2.5% to 3.0%, not to forget a fourth straight 50 basis points (bps) rate hike.  It’s worth noting that the 0.50% rate lift is discussed and priced in, which signals the “need for more” by the pair buyers. Following that, the Fed Minutes will be eyed to confirm another hawkish move in September despite the latest reduction in the inflation fears.

Also read: Reserve Bank of New Zealand Preview: Growth fears could temper hawkish rhetoric

Technical analysis

NZD/USD recently bounced off the 100-DMA support around 0.6320 amid bullish RSI divergence. The recovery moves, however, need validation from a downward sloping resistance line from late April, close to 0.6460 by the press time.