NZD/USD consolidates biggest jump in a month below 0.7100 on wider NZ trade deficit

• NZD/USD retreats after the heavy rebound from the monthly low.
• New Zealand trade deficit widens as exports drop and imports grow during August.
• Market sentiment stays firmer but Kiwi bulls need strong push after a stellar performance to carry on.
• China’s Evergrande, US stimulus and New Home Sales may entertain traders amid a likely dull Friday.

NZD/USD remains on the consolidation mood around 0.7070 backed by downbeat New Zealand (NZ) trade data for August during Friday’s Asian session. In doing so, the Kiwi pair takes a breather after rising the most since late August the previous day.

New Zealand Trade Balance dropped more than $-397M prior to $-2144M MoM while the YoY figures rose past $-1.1B previous readouts to $-2.94B during the stated month. Further details signal that the Exports dropped below $5.77B to $4.35B whereas Imports rose past $6.17B to $6.49B.

Even if the softer Kiwi data helps the NZD/USD counter-trend traders, the pair keeps an upside break of 100-DMA level of 0.7065 amid risk-on mood, which in turn favors the bulls eyeing the Reserve Bank of New Zealand’s (RBNZ) rate hike next month. “Locally there isn’t much to get excited about – the RBNZ will kick off its tightening cycle next month, but with a 25 rather than 50bp hike, but this and follow-on hikes are well priced in already,” said the Australia and New Zealand Banking Group (ANZ).

The Kiwi pair jumped the most since late August on Thursday tracking the US Dollar Index (DXY) weakness amid upbeat sentiment. Fading fears that China’s struggled real-estate firm Evergrande is a serious threat to the economy plays a key role in the latest brighter mood. The firm got restructuring plans and showed readiness to pay a scheduled coupon while also gained government support to lift the sentiment. It’s worth noting that progressing talks over the US $3.5 trillion stimulus and vaccine optimism adds to the improved risk appetite.

While stepping back from the multi-day top, not to forget marking the heaviest daily fall since late August, the DXY ignores firmer Treasury yields. The US 10-year Treasury yields jumped the most in seven months the previous day as traders reassessed the hawkish phenomenon of the US central banker. The Fed left benchmark rates unchanged near 0.25% at the latest meeting but signaled rate hikes and tapering more seriously.

Against this backdrop, Wall Street portrayed a rosy picture of the market sentiment while the S&P 500 Futures rise 0.10% at the latest.

Given the lack of major data/events, as well as the date of Evergrande’s coupon payment, NZD/USD traders will pay close attention to risk catalysts for fresh impulse. Also important will be US New Home Sales for August, expected 0.7M versus 0.708M prior.

Technical analysis

In addition to a clear bounce from the 50% Fibonacci retracement of late August to early September upside, near 0.6985, NZD/USD bulls can also cheer a daily closing beyond 100-DMA, around 0.7065, to aim for the 200-DMA hurdle close to 0.7120.