NZD/USD dribbles below 0.6400 on mixed New Zealand trade numbers, PBOC eyed

• NZD/USD remains sidelined after easing from two-week high, stays on the way to first weekly gain in eight.
• New Zealand Trade Balance improved but Imports, Exports eased in April.
• New Zealand Budget, China news and softer USD favored bulls earlier.
• PBOC may keep rates intact tracking the latest MLF move, covid conditions.

NZD/USD bulls take a breather around the two-week top, paying a little heed to New Zealand trade numbers for April, during Friday’s initial Asian session. In doing so, the Kiwi pair seesaws near 0.6380 after rising the most since May 04 the previous day.

That said, New Zealand’s (NZ) headline Trade Balance turned to a surplus of $584M versus the previous deficit of -581M (revised) on MoM while the YoY figures also improved to $-9.117B from a downwardly revised deficit of $9.3B. Details suggest that the Imports dropped to $5.727B from $7.06B prior whereas the Exports eased to $6.311B versus $6.4B (revised).

An improvement in risk assets and softer US Treasury yields, as well as the downbeat US dollar, underpinned the NZD/USD pair’s biggest daily gains in two weeks the previous day. Also favoring the Kiwi was the NZ government’s generous budget announcement. Additionally, improvement in China’s covid conditions and Shanghai’s plan of gradual unlock, backed by zero covid cases outside the quarantine area in recent days, offered extra strength to NZD/USD.

US Dollar Index (DXY) braces for the first weekly loss in seven as markets seem to have tired of hearing the 50 bps support from the latest Fedspeak, even if some of the policymakers do push for aggressive actions. On Thursday, Kansas City Fed President and FOMC member Ester George said she is comfortable now doing half-point rate increases. However, Federal Reserve Bank of Minneapolis President Neel Kashkari mentioned the need for the Fed to be aggressive.

Also weighing on the greenback are recently downbeat US data. The latest print of the Federal Reserve Bank of Philadelphia’s Manufacturing Activity Index for May dropped to the lowest reading since May 2020, to 2.6 from 17.6 in April. Further, the Initial Jobless Claims in the week ending on 14 May rose to 218,000, the highest level since January, from 197,000 one week ago and expected a rise of 200,000.

It’s worth noting that the NZ budget’s multiple relief measures catch a doubt in the second readings as to how the government will pay for the same. This pushes analysts at the Australia and New Zealand Banking Group (ANZ) to say, “There are some good initiatives in the Budget – but with the economy so capacity constrained, there are risks the RBNZ may need to “make room” for government spending by inflicting higher interest costs on the economy.”

Against this backdrop, Wall Street closed mixed and the yields were softer, taking down the USD with them. The S&P 500 Futures print mild gains by the press time.

Looking forward, a softer US dollar may help the NZD/USD to remain on the front foot, despite lacking further upside momentum of late. Even so, the Kiwi pair traders will pay attention to the People’s Bank of China’s (PBOC) Interest Rate Decision for immediate direction. The PBOC isn’t expected to unveil any changes to the benchmark rate as it kept the 1-year Medium-Term Lending Facility (MLF) interest rate unchanged at 2.85% earlier in the week.

Technical analysis

A clear upside break of the seven-week-old descending trend line, now support around 0.6310, keeps NZD/USD buyers hopeful of crossing the immediate hurdle, namely the 21-DMA level of 0.6415, which in turn can direct the recovery moves towards the monthly peak of 0.6568.