- NZD/USD begins trading week near Friday’s closing after a volatile week.
- RBNZ, NZ inflation defended bulls despite risk-off mood.
- Light calendar keeps risk catalysts on the driver’s seat, covid updates are the key.
NZD/USD seesaws around 0.7000 amid a subdued start to the week’s trading on Monday. The kiwi pair previously witnessed an active week, closed without any major change, as the Reserve Bank of New Zealand’s (RBNZ) hint of tapering, followed by upbeat inflation figures, battled the coronavirus (COVID-19) woes.
Covid variants weigh on the risk appetite of late as virus resurgence in the West and Sout-East Asia-Pacific renew economic fears. Also testing the sentiment could be the uncertainty over the US Federal Reserve’s (Fed) next action and the fresh Sino-American tussles.
Despite witnessing over 50,000 cases by the end of Saturday, not to forget warnings of witnessing over 200,000 daily cases, the UK is up for removing the virus-led activity restrictions on “Freedom Day”. The conditions are also grim in New Zealand’s largest customer Australia where lockdown gets extended for another week as Delta strain of the virus propels fears. Furthermore, Indonesia, Fiji and Thailand are also suffering from the COVID-19 resurgence whereas the latest trend in the US, as far as the pandemic data is concerned, signals gradually firming up infections.
Read: COVID spread weighing on market's risk appetite
The virus resurgence does question the economic rebound from the pandemic days outside New Zealand but the RBNZ remains hawkish and can keep NZD/USD bulls hopeful. In addition to the comparatively better covid conditions, rising inflation also pushes the RBNZ to move forward towards the rate hike, widely chattered during late 2021.
On the other hand, Fed keeps rejecting monetary policy adjustments despite strong data, which in turn adds to the market’s indecision and puts a safe-haven bid under the US dollar. Furthermore, fears of economic fallout and the Sino-American tensions over trade as well as geo-political issues weigh on the market mood, favoring the greenback.
On Friday, downbeat US data-backed economic fears while the details concerning inflation favored odds for the Fed’s action. The same weighed on the equities and Antipodeans.
Looking forward, a lack of major data/events could keep NZD/USD at the mercy of qualitative factors. Among them, the COVID-19 headlines may continue weighing on the quote while RBNZ-led optimism may defend bulls.
Technical analysis
A descending triangle formation between 0.6920 and 0.7030 restricts short-term NZD/USD moves. It should, however, be noted that gradually firming up MACD bullish signals could confirm the bullish chart pattern. Even so, the 200-DMA level around 0.7080 acts as the key upside filters.
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