NZD/USD recovery approaches 0.6150 as risk-aversion ebbs, China GDP, US Retail Sales eyed

• NZD/USD picks up bids to refresh intraday high, pares biggest losses around two-year low.
• New Zealand Business NZ PMI dropped to 49.7 in June, the lowest in 10 months.
• Market sentiment improves on receding hawkish Fed bets, recession fears.
• China’s Q2 GDP, US Retail Sales for June will decorate calendar, Fedspeak will also be important ahead of blackout period.

NZD/USD holds onto the late Thursday’s corrective pullback around 0.6130 during Friday’s initial Asian session. In doing so, the Kiwi pair cheers improvement in the market sentiment while ignoring downbeat data at home.

That said, New Zealand’s Business NZ PMI for June marked the lowest reading since August 2021 while flashing 49.7 figures. In doing so, the activity gauge dropped below 52.7 market forecast and 52.9 prior.

On the other hand, the S&P 500 Futures rise 0.35% intraday to portray the market’s cautious optimism ahead of the key data from China and the US. The recently easing risk-off mood could be linked to the mixed comments from the Fed speakers who tried to talk down the odds of the 100 bps rate hike. On the same line was the CME’s FedWatch tool that showed receding probabilities favoring the 75 basis points (bps) of Fed rate hike during July. Additionally, the receding difference between the 2-year and the 10-year US Treasury yields also helped the NZD/USD rebound.

Among important Fed speakers were St. Louis Federal Reserve President James Bullard and Federal Reserve Governor Christopher Waller. That said, Fed’s Bullard said, "So far, we've framed this mostly as 50 versus 75 at this meeting." On the same line, Fed’s Waller mentioned that markets may have gotten ahead of themselves by pricing a 100 basis points rate hike in July, as reported by Reuters. It should be noted that the Fed policymakers head to a blackout period from this weekend ahead of late July Federal Open Market Committee (FOMC).

Elsewhere, the US 10-year Treasury yields ended Thursday around 2.95%, up 0.95% intraday, whereas the 2-year bond coupon dropped 0.75% to 3.12% at the latest. With this, the difference between the near-term and the longer-term bond coupons declined, which in turn allowed NZD/USD bears to step back, mainly due to the reduction in the recession fears that previously favored the US dollar bulls.

On the same line is the CME’s FedWatch tool that signals a nearly 52% chance of the Fed’s 75 bps rate hike in July versus showing an almost certain case for the said rate lift the previous day.

Alternatively, mixed US data, mainly suggesting higher inflation, keep exerting downside pressure on the pair. On Thursday, the US Bureau of Labor Statistics mentioned that the Producer Price Index (PPI) for final demand in the US climbed to 11.3% on a yearly basis in June from 10.9% in May. This print surpassed the market expectation of 10.7%. Additionally, there were 244,000 Initial Jobless Claims in the week ending July 9 versus the previous week's print of 235,000 and market expectation of 235,000. The Weekly Jobless Claims were the highest in five months.

Looking forward, China’s economics will be crucial for the NZD/USD prices ahead of the US data. Above all, chatters surrounding recession and inflation will be the key to follow for fresh impulse. Forecasts suggest that China’s Q2 Gross Domestic Product (GDP) to drop to -1.5% QoQ versus 1.3% prior while the Retail Sales may print a 0.0% YoY figure for June compared to -6.7% previous reading. Further, the US Retail Sales is likely to rise to 0.8% MoM in June from -0.3% marked in May.

Also read: US June Retail Sales Preview: Has the consumer turning point arrived?

Technical analysis

A daily closing below the monthly support line, around 0.6085 by the press time, appears necessary for the NZD/USD bear’s conviction. Until then, the odds of witnessing a corrective pullback towards a downward sloping resistance line from June 16, near 0.6167 at the latest, can’t be ruled out.