- NZD/USD begins trading week on a wrong footing, fades two-day rebound.
- New Zealand covid cases jump to six-week high, most infections linked.
- US NFP disappointed but details couldn’t challenge Fed tapering, FOMC minutes eyed.
- Cabinet decisions on virus-led alert levels will be the key amid US holiday.
NZD/USD snaps recovery hopes with a downside gap to kick-start the week’s trading around 0.6921, versus the previous week’s closing around 0.6940.
The worsening COVID-19 conditions in New Zealand (NZ) seems to be the key catalyst behind the latest weakness, highlighting today’s speech from Prime Minister (PM) Jacinda Ardern as an important factor for NZD/USD traders to watch amid a partial off in the US.
NZ covid infections jump to a six-week high of 60 during this weekend, per the latest government update. Although more than 40 of them were linked to the previous infections, with more than 350 exposure cites announced, pessimism concerning the covid-led hardships to weigh on the New Zealand economic recovery gain momentum.
Given the last week’s dull reaction to the Reserve Bank of New Zealand’s (RBNZ) rate hike, coronavirus fears become a serious challenge for the NZD/USD prices amid looming Federal Reserve (Fed) tapering.
That said, Friday’s US jobs report for September probed the US dollar bulls. The headline Nonfarm Payrolls (NFP) disappointed markets with 194K figures, much lower than around 500K expected. It should be noted, however, that the prior reading got an upward revision to 366K. On the same line, the Unemployment Rate dropped to 4.8%, versus 5.1% expected and 5.2% prior, soothing the pains, whereas Average Hourly Earnings also jumped past 0.4% expected and revised down previous readouts of 0.4% to 0.6%. Hence, the employment data wasn’t a clear threat to the Fed tapering plans. However, the recent weakness in the job numbers may warrant the US central bank towards a slow run to the rate hike. The same highlights this week’s Fed Meeting Minutes for clear direction amid mixed response to the US employment data.
For now, no major data/events at home join the partial off in the US, due to Columbus Day, to restricts short-term NZD/USD moves. However, 03:00 AM GMT cabinet decision on the virus-led alert levels will be crucial to watch. Should Auckland remains under level 3 without any more easing in the virus-led activity restrictions, coupled with negative surprises for Northland, the Kiwi pair may witness further downside. On the contrary, an absence of negative news may not help the bulls amid the latest Sino-American and the Aussie-China tussles, not to forget Evergrande-led economic challenges for Beijing.
Technical analysis
NZD/USD corrective pullback from a seven-week-old support line, around 0.6880, needs validation from 10-day EMA and a descending trend line from late September, near 0.6950-55. Even so, a convergence of 21-day EMA and a three-week-long resistance line close to 0.6980 becomes a tough nut to crack for the pair buyers before retaking the controls.