NZD/USD Defended 200-Day SMA, Remains Vulnerable

• The NZD/USD pair fell below the 100-day SMA to as low as 0.6133, but recovered to stabilize at 0.6160.
• The USD gained ground on encouraging housing data, and all eyes were on Jerome Powell’s testimony.
• Market sentiment turned cautious on the PBOC rate cut.

On Tuesday, as US traders returned from their three-day weekend, the NZD/USD pair fell to its lowest level in over a week, towards the 0.6130 zone. The announcement by the People’s Bank of China (PBoC) to cut rates and a strong dollar are the main reasons why the kiwi weakened.

The PBOC lowered rates, while the US published encouraging data on housing

During the Asian session, the People’s Bank of China announced a 10 basis point (bp) reduction in benchmark prime lending rates (APRs). In addition, the one-year LPR was reduced from 3.65% to 3.55%, while the five-year LPR went from 4.30% to 4.20%. In this regard, the rate cuts reminded investors of the weakness seen in Chinese economic activity, and as China is a large trading partner of New Zealand, the Kiwi lost traction.

On the other hand, housing starts data released by the US Census Bureau for May beat expectations, showing a notable increase of 21.7% versus an expected decline of 0.8%. In addition, building permits for the same month increased by 5.2%, while the consensus was for a decrease of 5%. In reaction, the Dollar, as measured by the DXY index, held at 102.60, posting gains on the day despite the widespread fall in US bond yields, signaling a cautious mood in the market amid higher demand for safe haven bonds. In this sense, the yield of the 10-year Treasury bonds led the fall, with a decrease of 2.35% on the day, to 3.73%.

Attention now turns to Jerome Powell’s testimony before Congress during Wednesday’s session, where investors will be looking for any clues about the Federal Reserve’s monetary policy. In addition, the release of jobless claims data on Thursday and S&P PMI data on Friday may also have an impact on USD price action.

NZD/USD technical levels

According to the daily chart, the technical outlook for NZD/USD turned bearish as bears sold off much of last week’s gains in the past two sessions. Furthermore, technical indicators have dipped into negative territory, as the pair is now trading below the 100 and 200 day simple moving averages (SMAs).

On the downside, support levels line up at the daily low in the 0.6130 zone, followed by the 20-day SMA at 0.6108, and the key psychological level 0.6100. To the upside, the 100 and 200 day SMAs at 0.6150 and 0.6212 are the next resistances to break to reignite bullish momentum.