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NZD/USD: Bears keep reins around 0.6650 amid sour sentiment

NZD/USD begins the week on a softer footing near 0.6645, fading the corrective pullback from intraday low following a two-day decline.

In doing so, the Kiwi pair battles the risk of the Russia-Ukraine war amid uncertainty over the pace of rate hikes by the US Federal Reserve (Fed) and the Reserve Bank of New Zealand (RBNZ).

The quote bears managed to take a breather during mid-Friday as probabilities of the Fed’s 0.50% rate hike in March eased following the softer US data. However, stark warning of a Ukraine-Russia war by the US propelled risk-off mood and the US dollar, while allowing the US Treasury yields to trim some of the latest gains.

That said, the CME FedWatch Tool suggests around 50-50 chances of 50 basis points (bps) of a Fed-rate-hike in March versus a 0.25% move. Previously, especially after the US Consumer Price Index (CPI) release, the market was almost certain of a higher boost to the rates.

Talking about the data, the preliminary readings of the US Michigan Consumer Sentiment for February eased from 67.2 to 61.7 on Friday. Following the data, ANZ said, “This confidence series has not been this low since the GFC and that is despite the current strength in the jobs market. Inflation expectations were in line with expectations, and imply consumers see inflation remaining elevated above the Fed’s 2% target in the near, medium and longer run.”

At home, New Zealand’s Food Price Index for January rose past 0.4% expected and 0.6% prior readings to 2.7% MOM whereas the Business NZ PSI for the said month eased below 49.7 to 45.9.

Given the downbeat data and risk-aversion wave, short-term NZD/USD weakness becomes imperative. However, the odds of a rate hike in next week’s RBNZ may keep the Kiwi pair afloat. “The RBNZ MPS next week is the next major risk event locally, and that will almost certainly be punctuated by volatility, given that market expectations are split about a 25bp or 50bp hike (odds are roughly 5:3 respectively),” said ANZ.

Technical analysis
A clear downside break of the two-week-old ascending trend line directs NZD/USD prices towards the last swing lows near 0.6590 before highlighting January’s bottom close to 0.6530 for bears.

Alternatively, the support-turned-resistance line and the 21-DMA, near 0.6660, restrict the Kiwi pair’s recovery moves ahead of the monthly high near 0.6735.

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