NZD/USD: Kick-starts August on a back foot below 0.7000, Aussie, China catalysts eyed

• NZD/USD remains pressured after five weeks of south run.
• Mixed US data, China crackdown on equities and Aussie covid conditions probe bulls, RBNZ rate hike expectations challenged.
• NZ job numbers become the key for the week, Australia and China PMIs can offer immediate direction.

NZD/USD keeps controls around 0.6965, after Friday’s closing joined multi-day-old grind to the south, amid early Monday morning in Asia. Although no major disappointments have so far rolled out from New Zealand, a shift in the market sentiment and downbeat data at major customers seem to tests the domestic scenario of late.

Among the major challenges, China’s crackdown on IT and educations sector companies and fresh Sino-American tussles seem the key. Chinese equities have lost around $1.0 trillion during the last week, per ANZ, as investors try to ascertain the regulatory risks. Analysts further mentioned, “Chinese equities are now a significant part of many passive investment funds due to their inclusion in global indexes, particularly those tilted towards Asia or emerging markets.”

It should be noted that the US Securities and Exchange Commission (SEC) recently banned Chinese IPO on the US exchanges until disclosing detailed risks. The same pushed the Chinese market regulator to arrange a talk with the US. Not only on the equities front but the US-China tussles are also escalating over Taiwan, Hong Kong and trade issues as well.

Elsewhere, Australia’s virus conditions remain grim with figures in New South Wales testing March 2020 highs and the national counts matching levels of August 2020.

On the positive side, softer-than-expected US inflation and GDP figures keep NZD/USD buyers hopeful but the details aren’t that pessimistic. Additionally, because the US policymakers are inching closer to another stimulus, the money support will propel reflation fears and the US dollar’s safe-haven demand.

At home, stronger covid conditions and no major change in the New Zealand fundamentals push the government to keep borders closed for infected nations. The same should push the inflation and allow the Reserve Bank of New Zealand (RBNZ) to take a breather before announcing the much-awaited rate hike, earlier expected in August by RBNZ.

For now, monthly PMI from Australia and China’s Caixin Manufacturing PMI could offer immediate direction but the risk catalysts are the key. It’s worth noting that China’s official activity data for July, published over the weekend, marked another weakness, signaling a downbeat print of the private reading and keeping the NZD/USD sellers hopeful.

Technical analysis

NZD/USD extends a five-week-old grind inside a descending channel between 0.7015 and 0.6860. While an upside clearance needs validation from 0.7100, the downside break of the channel’s support will direct the bears to September top of 0.6800.