NZD/USD Rebounds Sharply And Settles Back Above 0.61200s; Further Uptick Seems Elusive

• NZD/USD cross rebounds sharply in the mid-Asian session and settles firmly above 0.61200s 
• The general USD strength amid rising treasury bond yields should cap the upside for NZD/USD pair
• Disappointing Chinese macro data and fresh negative New Zealand macro data undermine the Kiwi
• Market focus shifts to Key catalyst events for the week: U.S. Inflation data and Fed decision

NZD/USD pair attracted some buying on Monday during the second part of the Asian session and rebounded modestly amid the cautious mood. The cross met fresh demand from the vicinity of the 0.61210 level, lifted spot prices firmly above the 0.61200 level, and looks set to stick to its offered tone heading into the European session. The prevalent cautious mood continues to temper investors' appetite for perceived riskier assets. This was evident from a weaker tone around the equity markets, which, along with a modest uptick in treasury bond yields, tends to benefit the safe-haven greenback. This and hawkish Fed expectations during this week's Fed meeting should cap the upside for the NZD/USD pair.

Market participants still expect the Fed to raise rates this week by 25bps to 5.25% despite the dovish rhetoric from several Fed officials in recent weeks combined with a fresh batch of disappointing U.S. macro data that showed initial jobless claims reached their highest level since October 2021, indicating a potentially softening labor market and further reinforcing bets that the Fed could pause its rate hiking cycle this week. The disappointing jobless claims report joins the previous week's downbeat U.S. services data report and this week's U.S. inflation figures, of which, according to a preliminary report, inflation is expected to have slowed down last month. That said, if the inflation figures match market expectations, then this might force the Fed to pause its rate-hiking cycle.

Against this backdrop, the greenback continues to be supported by a series of weak Chinese macro data, which have added worries about a global economic downturn and is seen as a key factor undermining the Kiwi, suggesting the path of least resistance for the NZD/USD pair is to the downside. Last week, a Chinese National Bureau of Statistics report showed China's annual inflation rate edged up to 0.2% in May 2023 from April's 26-month low of 0.1% but below market estimates of 0.3%. Every month, consumer prices dropped by 0.2%, the fourth straight month of fall, compared with a 0.1% decline forecast.

Additionally, China's producer prices fell 4.6% yoy in May 2023, faster than a 3.6% drop in April and worse than market forecasts of a 4.3% drop. Every month, producer prices decreased by 2.6%, the second straight month of decline, after a 0.5 drop in the previous month. These inflation figures come on the backdrop of disappointing macro data from China, which pointed out that the post-Covid rebound had stalled, adding to worries about a global economic downturn. Elsewhere, a Statistics New Zealand report released earlier today showed. Electronic card transactions in New Zealand rose 3.3% year-on-year to NZD 6,374 in May 2023, following a 6.4% advance in the previous month. On a seasonally monthly basis, electronic card spending went down 1.7% after a 0.4% increase. 

As we advance, investors look forward to the U.S. docket featuring the release of the Federal Budget Balance report for May. However, the main focus remains on key catalysts for the week, featuring tomorrow's U.S. Consumer Price Inflation (CPI) data, U.S. Producer Price Index (PPI) data, and the Fed Interest Rate Decision announcement on Wednesday. 

Technical Outlook: Four-Hours NZD/USD Price Chart

From a technical perspective, using a four-hour price chart, the price is trading below key trendline support and has now turned the resistance level. Earlier in the session, the bearish price breakout (trendline breakout above the key support level) supported prospects for further southside moves. However, the price has rebounded, and some follow-through buying would uplift the NZD/USD pair toward the resistance level plotted by an ascending trendline. A clean break above this level, this would pave the way for a short rally toward tagging the technically strong 200-day Exponential Moving Average (EMA) at the 0.61512 level. A convincing move above this level could negate any-near term bearish outlook and pave the way for aggressive technical buying. The NZD/USD could then extend its neck above the 0.61536 resistance level toward confronting the 0.61817 resistance level.

On the flip side, any meaningful pullback now finds some support at the buyer congestion zone due to the 20 (blue) and 50 (red) EMA levels at 0.60933 and 0.60854 levels, respectively. If sidelined sellers join in from this buyer zone, it could provoke an extended decline beyond the 0.60586 support level toward the lower limit of the bearish rising wedge chart pattern.