NZD/USD sellers flirt with 0.7000 with eyes on PBOC, Fed

• NZD/USD stays depressed around fresh monthly low after four-day downtrend.
• RBNZ’s Hawksby, downbeat NZ data and mixed sentiment weigh on Kiwi despite softer DXY.
• Evergrande fears fade but China’s return eyed, Fed’s tapering could amplify USD gains.

NZD/USD holds lower ground near 0.7000, at a fresh monthly low following a four-day decline amid early Wednesday morning in Asia.

While comments from the Reserve Bank of New Zealand (RBNZ) official initially favored bears the previous day, broad weakness in the Antipodeans ahead of China’s first day of the week’s trading and US Federal Reserve (Fed) meeting continued piling losses on the Kiwi pair. In doing so, the quote ignored the softer US Dollar Index (DXY) and slightly positive market sentiment.

RBNZ Assistant Governor Christian Hawksby backed the central bank’s decision to delay the rate hike during the latest meeting while spotting covid fears. The same joins recently increasing virus numbers outside Auckland to reduce the odds of any such moves during 2021, which in turn kept NZD/USD sellers hopeful.

Also underpinning the quote’s weakness could be the downbeat New Zealand GDT Price Index data, 1.0% from 4.0%. On the same line could be firmer US housing market data, namely Housing Starts and Building Permits for August, which backed hopes of hearing the word taper from the US Fed in Wednesday’s meeting, Thursday for New Zealand.

Alternatively, the DXY softened for the second day after stepping back from a monthly high on Monday. The reason could be spotted from the market’s readiness to accept the fact China will save its biggest real-estate player, either directly or indirectly, from being like a Lehman saga. Evergrande Chairman also sounds optimistic in his latest speech and supported the brighter concerns.

Another risk-on factor was hopes of stimulus, as hinted by House Speaker Nancy Pelosi, as well as the US Democratic Party’s push to suspend the debt ceiling.

Above all, the cautious mood ahead of the US Fed meeting kept traders on the wait-and-watch mode, which gave rise to consolidation despite except for the NZD/USD prices.

While portraying the mood, US equities closed mixed while the 10-year Treasury yields rose 1.9 basis points (bps) to 1.328% by the end of Tuesday’s North American session.

Moving on, all eyes on China’s return and Beijing-based traders’ reaction to the Evergrande fears. The PBOC meeting is also up for conveying the latest rate decision, prior 3.85%, increasing the importance of China open.

Read: PBoC September Preview: Will policymakers step in to ease Evergrande fears?

Following that, markets may witness the pre-Fed trading lull but could react to the risk catalysts and second-tier US data. Should the Fed resort to the hawkish expectations, NZD/USD has a further downside gap to fill.

Read: Can the Fed disrupt stock market gains, and why China’s evergrande is causing wobbles elsewhere

Technical analysis

A clear downside break of 200-day EMA, around 0.7020, directs NZD/USD bears towards one-month-old horizontal support near 0.6985.