NZD/USD regains 0.6200 but bulls need validation from Fed Minutes, US NFP

NZD/USD begins the week on a positive note, after falling to the two-year low the previous day, as traders pare recent losses amid a quiet Monday morning in Asia. In doing so, the Kiwi pair braces for this week’s key events/data from the US, while having no major catalysts at home, ahead of next week’s Reserve Bank of New Zealand (RBNZ) Monetary Policy Meeting.

The Kiwi pair dropped to the lowest level since April 2020 on Friday after the US ISM Manufacturing PMI propelled economic slowdown concerns. Also drowning the NZD/USD prices were firmer US dollar and bonds, as well as challenges for the RBNZ’s next rate hike.

That said, the US ISM Manufacturing PMI for June slumped to the lowest levels in two years, to 53.0 versus 54.9 expected and 56.1 prior. The details suggested the Employment Index declined to 47.3 from 49.6 and New Orders Index fell to 49.2 from 55.1. Finally, Prices Paid Index dropped to 78.5 from 82.2, versus market forecasts of 81.0.

It should be noted that the final readings of the S&P Global Manufacturing PMI for June dropped to the lowest level since July 2020, to 52.7 versus the flash estimate of 52.4 and 57 in May.

Considering the recent weakness in the US PMIs, as well as the questions the figures raise, the Australia and New Zealand Banking Group (ANZ) said, “Surveyed data from both PMIs and the US ISM are all pointing to faltering orders growth, lower backlogs of work indices and softer production over the summer. It is hard to escape the growing growth pessimism, which is also fanning expectations of a peak in both inflation and central bank hawkishness.”

Elsewhere, the RBNZ Official Cash Rate (OCR) expectations have also receded amid recession fears while China’s PMIs fail to renew market optimism.

Amid these plays, the US 10-year Treasury yields marked the biggest weekly fall since February whereas Wall Street benchmarks struggled for clear directions after Friday’s surprise gains.

Moving on, the US Independence Day holiday and a lack of major data/events may restrict NZD/USD moves during the day, while also allowing the traders to lick their wounds. However, this week’s Fed Minutes and Friday’s US Nonfarm Payrolls (NFP) will be crucial as traders remain divided over the US central bank’s next move.

Technical analysis

Despite the latest rebound, NZD/USD remains below 61.8% Fibonacci retracement of the 2020-21 rally near 0.6230, the support level broken on Friday, which in turn keeps bears hopeful of testing the April 2020 peak surrounding 0.6175.