• NZD/USD crashes around multi-month low, offers no surprises early in the week.
• Fed policymakers remain hawkish after announcing a rate hike in March, the US ECI has given the bears some breathing room lately.
• China’s PMI eased ahead of a holiday week, the New Zealand and US jobs report will be key this week.
• Geopolitical tension around Russia escalates, no major data/events to watch on Monday.

NZD/USD is drooling around 0.6550, struggling to stave off Friday night’s rebound from a 16-month low amid a quiet start to the week.

The Kiwi pair saw the biggest weekly decline since mid-August 2021 last week on the hawkish shutdown by the US Federal Reserve (Fed). The Omicron gap in New Zealand (NZ) and geopolitical concerns surrounding Russia and Ukraine also added to the pair’s weakness. In doing so, the quote ignored New Zealand’s upbeat consumer price index (CPI) for the fourth quarter (Q4). However, this week’s jobs data from the US and New Zealand will be important for traders in the pair amid renewed concerns over the Fed’s 0.50% rate hike in March.

The U.S. dollar index (DXY) hit the highest levels since July 2020 before falling to 97.44 on Friday after the fourth quarter U.S. Employment Cost Index (ECI) fell to 1, 0% versus 1.2% and 1.3%. The payroll data challenged earlier market concerns about a 50 basis point (bps) rate hike by the Fed at its March meeting. It should be noted, however, that the Fed’s preferred inflation indicator, the Core PCE price index for December, rose to 4.9%, from 4.8% expected and 4.7% previously, to keep the Fed hawks on the table.

Following the release of the U.S. data, Minneapolis Federal Reserve Chairman Neel Kashkari said he expected the Fed to raise rates at the March meeting. However, the decision maker stressed the importance of incoming data while saying, “You have to see how the data plays out.” On the same line was Raphael Bostic, chairman of the Fed’s Atlanta branch, who reiterated his call for three Fed rate hikes in 2022, in an interview with the Financial Times (FT), the first coming in March. “If the data indicates that things have moved in such a way that a 50 basis point move is necessary or [would] be appropriate, so I’ll look into that. . . If moving to successive meetings makes sense, I’ll be comfortable with that,” the Fed’s Bostic told FT.

Elsewhere, New Zealand Prime Minister Jacinda Ardern and Governor General Dame Cindy Kiro are both online for their covid test results as among passengers asked to self-isolate after being on a flight with a positive case , by NZ Herald. The news also mentioned: “This comes as 103 new community cases of the virus were recorded in New Zealand yesterday, and one new death.”

It should be noted that Reuters recently published an article suggesting that the US Senate is about to legislate to sanction Russia, which in turn will escalate the geopolitical tension between the West and Moscow. As a result, risk aversion may keep downward pressure on the antipodes.

Amid those games, 10-year US Treasury yields fell three basis points to 1.778% while Wall Street benchmarks had a positive day to end the week.

Next, this Wednesday’s fourth quarter employment report from New Zealand and monthly employment data from the United States, which will be released on Friday, will be crucial for the NZD/USD price forecast. That said, a lack of major data/events on Monday will highlight risk catalysts for further momentum.

Technical analysis

Unless it recovers above a previous downward sloping March 2021 support line around 0.6665-70, NZD/USD remains vulnerable to test the March 50% Fibonacci retracement (Fibo.) 2020 to February 2021 on the upside, near 0.6465. That said, RSI conditions point to a corrective pullback before resuming the fortnight-old downtrend.