- NZD/USD bounces off the multi-month low but the broad risk-off remains.
- New Zealand terms of trade came in positive, failed to counter coronavirus-led risk aversion wave.
- China’s Caixin Manufacturing PMI in the spotlight for now while COVID-19 headlines will keep the driver’s seat.
Following its bounce off 0.6195, NZD/USD seesaws around 0.6220 during the Asian session on Monday. That said, the pair dropped to the lowest since August 2015 on Friday while the recent pullback could be attributed to New Zealand’s second-tier trade data. Investors will now look forward to China’s private manufacturing gauge as an immediate catalyst whereas coronavirus (COVID-19) news will continue acting as the key indicator.
New Zealand’s Goods Terms of Trade for the fourth quarter (Q4) 2019 rose 2.6% versus the revised down the prior reading of 1.7%. Following the release, the Australia and New Zealand Banking Group said, “the terms of trade are expected to change drastically in 2020 as supply chains become sluggish due to the COVID-19 outbreak. NZ export volumes and prices are expected to fall while product shortages are expected to put upward pressure on the cost of imports.”
While the data offered intermediate bounce to the kiwi pair, the broad bearish momentum remained intact as coronavirus headlines keep suggesting darker days ahead. The recent news indicates widespread contagion of COVID-19 outside China resulting in the first death into the US. The news provided additional fuel to the rush to risk-safety with the US policymakers showing readiness to announce tax, rate cut measures to counter the deadly virus. It should also be noted that New Zealand also registered its first death due to the COVID-19 during the weekend.
On the other hand, China’s official Manufacturing and Non-Manufacturing PMIs, published during the week, registered record lows due to coronavirus-led activity stop. While identifying the need to react, the Fed has already shown readiness for further rate cuts while there are 70% chances for the RBNZ to announce a rate cut during its next meeting on March 25.
Although coronavirus headlines will be the keys to watch, China’s Caixin Manufacturing PMI for February, expected 45.7 versus 51.1 prior, could offer the immediate direction. Following that the US activity numbers will be in focus. However, nothing will defy the impact of coronavirus headlines.
Technical Analysis
While lows marked during Friday and October 2019 offer the immediate support around 0.6200-0.6190 area, pair’s further downside might not hesitate to challenge the year 2015 bottom surrounding 0.6120. Alternatively, any pullbacks from the current levels will need to stabilize beyond November 2019 low of 0.6316 to trigger hopes for the return of February 11, 2020 low near 0.6380.
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