NZD/USD: Recovery capped below 0.7200 after New Zealand Budget

• NZD/USD pokes intraday high following the upbeat NZ budget speech.
• New Zealand budget forecasts improvement in economics, fiscal conditions going forward.
• Market sentiment dwindles as tapering, trade fears battle vaccine hopes, stimulus expectations.
• Risk headlines remain the key, US data can also provide fresh impulse.

NZD/USD picks up bids to 0.7170, up 0.05%, after New Zealand Finance Minister Grant Robertson unveiled the annual 2021 budget early Thursday. In doing so, the quote struggles to overcome the previous day’s losses but risk aversion mood tests the pair’s immediate upside.

New Zealand (NZ) Finance Minister Robertson said, “Long-term effects of pandemic not as severe as previously thought” while releasing the annual budget for 2021. The key financial statement upwardly revised the GDP forecast from its Half Year Economic Forecast Update (HYEFU) while also expecting a gradual reduction in the fiscal deficit.

Read: NZ Budget: Sees 2021 GDP at +2.9% vs. HYEFU +1.5%

Other than the New Zealand budget updates, no rate change from the People’s Bank of China (PBOC), as widely expected, joins mixed Aussie jobs report to direct short-term NZD/USD moves. Also, the market’s cautious mood after the previous day’s FOMC-led pessimism offers additional pressure on the kiwi pair.

Although the Fed’s signals of talking the tapering and actual action are two different things, global markets turned risk-off following the FOMC Minutes, published Wednesday. The downbeat sentiment gained extra support from the virus woes in Asia and trade tussles between Australia and China. However, gradually picking up vaccinations keeps the hopes of faster economic recovery and tames the market bears. Also on the same line are the escalating hopes of the US fiscal stimulus as American policymakers jostle over final details of the infrastructure spending.

Amid these plays, S&P 500 Futures print mild losses and the US 10-year Treasury yields drop two basis points (bps) to 1.66%, after rising to 1.69% the previous day. It’s worth mentioning that the US dollar index (DXY) fails to keep Wednesday’s bounce-off February low by press time.

Given the mixed catalysts, NZD/USD traders should pay attention to the US traders’ reaction to the FOMC minutes and latest developments concerning the coronavirus (COVID-19) and the government relief packages. Also, Weekly Jobless Claims and Philadelphia Fed Manufacturing Survey data for May could offer extra details to better judge the pair moves. Above all, US dollar moves will be the key for the kiwi pair traders.

Technical analysis

Unless bouncing back beyond 100-day SMA, currently around 0.7180, NZD/USD sellers can target a 12-day-old support line near 0.7145 amid bearish MACD. However, any further weakness will have to break the 50-day SMA level of 0.7140 on a daily closing basis to confirm the seller’s entry.