NZD/USD seesaws around 0.7250, looks to China/NZ data to extend weekly gains

• NZD/USD offers a normal start to the week, keeps late Friday’s bounce off 0.7212.
• New Zealand Trade Minister O’Connor backs Australia in trade tussle with China.
• US data came in strong, President Biden announced $6.0 trillion budget, upbeat GDP forecast for 2021.
• China’s official PMIs, ANZ data will decorate calendar, US holidays can restrict market moves.

NZD/USD keeps late Friday’s recovery moves, not to forget extending the first weekly gain in three, as taking rounds to 0.7255-60 during early Monday morning in Asia. The kiwi pair benefited from the hawkish tone of the Reserve Bank of New Zealand (RBNZ) and broad US dollar weakness during the last week, despite the late-week corrective pullback, as well as risk-on mood. Though the bulls need fresh ammunition to extend the run-up, which in turn highlights China’s official PMI data for May and the full month activity and sentiment figures from the Australia and New Zealand Banking Group (ANZ).

Worsening of NZ-China ties…

While the RBNZ’s signals of a rate hike in 2022 were the key development for NZD/USD traders last week, New Zealand’s (NZ) worsening relations with China is also a point to consider important.

Following NZ Foreign Minister Nanaia Mahuta’s comments suggesting worsening trade ties with China, New Zealand Damien O'Connor was recently said to have backed Australia in its trade dispute with Beijing. It’s worth mentioning that New Zealand’s role in the Five-Eyes Group comprising the Western leaders that don’t have cordial ties with the dragon nation previously signaled challenges for NZ-China relations going forward. This should gradually delink Chinese data impact on NZD/USD, if China retaliates, as Beijing is one of the largest customers to Auckland. However, the developments are still in their infancy.

Elsewhere, US President Joe Biden stays ready for a $6.0 trillion budget while citing an upward revision to the FY 2021-22 GDP forecast to 5.2%. This puts upward pressure on the reflation fears that have recently roiled the US dollar and backed gold and Antipodeans. It should, however, be noted that the Fed’s stand remains intact, rejecting tapering, which in turn keeps the US Treasury yields firmer and limit the greenback’s south-run.

Although doubts over NZ-China ties may tame today’s reaction to China PMIs, the numbers are the key for fresh impulse. Market consensus favors the headlines NBS Manufacturing PMI to remain unchanged around 51.1 but the Non-Manufacturing PMI to ease from 54.9 to 52.7, suggesting mild pullback in NZD/USD prices. Also important will be the ANZ Business Confidence and Activity Outlook for May, expected to confirm initial forecasts of 7 and 32.3 respectively.

Technical analysis

Multiple tops marked since early January around 0.7320-05 test NZD/USD bulls but sellers aren’t likely to take the risk until the quote stays beyond convergence of 100-day SMA and an ascending trend line from early April, near 0.7180.