New Zealand Dollar Bucks USD Strength but APAC Sentiment Fragile on China Lockdowns

New Zealand Dollar, NZD/USD, China, Covid, Sentiment, Technical Outlook – Talking Points

• Asia-Pacific markets are set to trade amid fragile market sentiment backdrop
• China lockdowns are threatening economic demand ahead of National Congress
• NZD/USD may enter a period of consolidation, although its direction is uncertain

Wednesday’s Asia-Pacific Outlook

Asia-Pacific markets are set to see a cautious open amid fragile market sentiment following a mostly downbeat Wall Street trading session. The S&P 500 closed 0.65% lower, and the Nasdaq-100 Index (NDX) fell 1.24%. Treasury cash markets opened after an extended holiday weekend, although yields were unremarkably changed, with most tenures seeing little movement around levels not traded since late September.

The US-listed Nasdaq Golden Dragon China Index fell 3.44% against the Nasdaq-100’s 1.24% drop. That bodes poorly for today’s trading in Chinese technology stocks despite surging credit growth in China. New Yuan loans data for September rose to 2.47 trillion, well above the 1.8 trillion consensus forecast. Shanghai implemented testing restrictions across all of its districts, and smaller cities are ramping up virus curbs. That is likely to keep demand suppressed and could weigh on iron ore prices.

The China-sensitive Australian Dollar fell on the new Chinese virus curbs. AUD/USD was around 0.4% lower throughout the New York trading day. August visitor arrivals to New Zealand rose 4,748% from a year prior. Although the island nation was largely closed to tourists at this time last year, the number is an encouraging sign for the Kiwi Dollar.

Elsewhere, the British Pound fell almost 1% versus the USD. Bank of England’s Bailey announced that support ends on Friday stating “you’ve got three days left…” in a message to funds. That puts fund managers up against a tight timeline to address liquidity problems before the BoE’s support ends. A small pullback in short- and mid-term dated Gilt yields offered some relief to investors, although much uncertainty remains after this week. Japan’s August machinery orders are set to cross the wires today. The Bank of Korea is seen hiking its benchmark rate by 50bps to 3.0%.

New Zealand Dollar Technical Outlook

A recent leg lower in NZD/USD appears to have moderated. Prices broke lower earlier in October after breaking Bear Flag support, a pattern that has occurred more than once in recent months. That opens the door to another leg lower should prices continue to trade around current levels. However, an uptrend may start if prices manage to clear the falling 20-day Simple Moving Average.

NZD/USD 8-Hour Chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

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