NZD/USD retraces from four-month top amid trade war risk

NZD/USD consolidates gains to 0.6505 at the start of Tuesday’s Asian session. While recent announcements from the United States (US) show return of trade protectionism, upbeat data from China and home managed to please the Kiwi buyers the previous day.

The US Commerce Secretary Wilbur Ross’s comments signaling increased tariffs on Chinese production from December 15 joins the US taking harsh stand against metal imports from Argentina and Brazil to challenge the trade sentiment. The risk tone gets further weakness from the Reuters’ news that the US is considering higher tariffs on the European Union following World Trade Organization’s (WTO) ruling in Airbus saga. Further, China’s release of unreliable US entities’ list and sanctions against some of them, coupled with suspending the US military visit to Hong Kong keep the traders on their toes. Being a currency from the export-oriented economy, challenges to global trade system push the New Zealand dollar (NZD) buyers to rethink.

The kiwi pair surged to the four-month high the previous day as initial gains on the back of upbeat activity numbers from China and trade numbers from home got additional boost after the US dollar (USD) dropped across the board. The reason could be a consecutive fourth month of ISM Manufacturing Purchasing Managers’ Index (PMI) below 50. Investors could also argue about the greenback’s lost charm due to doubts over the US-China trade relations.

Additionally, news that the New Zealand government will bring major infrastructure spending also pushed the quote further towards the north.

Even so, the US 10-year treasury yields gain near four basis points while the Wall Street end the first trading day of December on the red side.

Moving forward, the absence of major data at home will shift market attention to the monetary policy meeting at the largest customer Australia. The Reserve Bank of Australia (RBA) is widely expected to leave benchmark interest rates unchanged amid a set of mixed data and challenges to the US-China trade deal. Though, this won’t reduce the importance of the trade headlines to affect the moves.

Technical Analysis

Despite rising to the four-month top, prices are yet to cross 200-day Exponential Moving Average (EMA) level of 0.6515, which in turn can trigger fresh pullback to September month high surrounding 0.6450 on the downside break of June low of 0.6487. Meanwhile, August top near 0.6590 will pop-up on bull’s radar once prices rally past-0.6515.