NZD/USD: Bears in controls at 14-month low under 0.6700 on risk-off mood, Fed eyed

January 26, 2022

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NZD/USD stays pressured around multiday bottom after four-day downtrend.
Sour sentiment, Omicron woes at home join IMF’s downgrade to China growth to weigh on Kiwi prices.
Downbeat US data fails to reject upbeat expectations from Fed, Russia-Ukraine tussles stay on the table.
Yields, DXY stay firmer amid hopes of hawkish Fed, equities print losses.

NZD/USD low under: NZD/USD portrays a corrective pullback from a 14-month low of around 0.6690 but stays depressed after a four-day downtrend to early Wednesday morning in Asia.

The kiwi pair’s latest consolidation could be linked to the day-end bounce in riskier assets after a heavy risk-off session. However, the bears keep control as pre-Fed anxiety escalates. Also weighing on the risk appetite, as well as the NZD/USD prices, are the escalating fears of a Russia-Ukraine was and downbeat economic forecasts by the International Monetary Fund (IMF).

Although the US CB Consumer Confidence and Richmond Fed Manufacturing Index joined the week-start trend of softer data, with Markit PMIs, Fed hawks remain hopeful on upbeat US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data. The inflation gauge rose for the third consecutive day on Tuesday after declining to the lowest since September on January 20.

Elsewhere, policymakers at the US, the UK and European Union (EU) are determined to levy economic sanctions on Russia if it invades Ukraine. However, the latest updates suggest receding fears of an imminent war between Moscow and Kyiv.

NZD/USD low under:

At home, New Zealand (NZ) Prime Minister Jacinda Ardern accepted rising fears of Omicron but stood ready for border reopening in February. The South African variant spreads faster in the Pacific nation and is likely to post 50K cases from the latest below 100 levels. In light of this, NZ Herald said, “The Government will today reveal how it will try to step up the fight against Omicron as the highly infectious Covid-19 variant spreads across the country, with predictions of up to 50,000 cases a day.”

It should be noted that the IMF No. 2 official Gita Gopinath conveyed downbeat economic forecasts the previous day as Omicron spreads. “We project global growth this year at 4.4%, 0.5 percentage point lower than previously forecast, mainly because of downgrades for the United States and China,” said IMF’s Gopinath per Reuters.

Amid these plays, Wall Street closed in red and the US 10-year Treasury yields printed the least daily losses after a four-day downtrend. That said, prices of gold and oil gained.

Looking forward, the pre-Fed caution can keep markets light-lipped but the US housing and trade numbers will join other risk catalysts to entertain NZD/USD traders. Among them will be the NZ government’s more steps to battle Omicron.

Given the highly hawkish hopes from the Fed, odds of a sharp disappointment with a slightly measured tone can’t be ruled out, which in turn could trigger the much-awaited bounce for the NZD/USD.

Read: Federal Reserve Interest Rate Decision Preview: Inflation, Omicron and equities

NZD/USD low under: Technical analysis

Unless crossing a two-week-long resistance line near 0.6735, NZD/USD stays vulnerable to test a descending trend line from late September 2021, around 0.6615 by the press time.