NZD/USD clings to mid-0.6500 area despite cautious optimism

NZD/USD takes rounds to 0.6555/60 amid the initial Asian session on Monday. The pair recently benefited from upbeat Business NZ PSI data and news that the European leaders are progressing in talks to avail a huge stimulus for the region. However, the latest fears concerning the coronavirus (COVID-19) outbreak keep the bulls chained.

New Zealand’s Business NZ PSI for June jumped above 37.2 prior to 54.1. The service activity gauge follows the last week’s headline reading that grew past-39.7 forecast to 56.3 for the previous month. Following the announcement, BusinessNZ chief executive Kirk Hope said, “Comments from respondents underline the two broad effects COVID-19 is currently having on the sector. On the positive side, a number outlined a catch-up or bounce back from post lockdown conditions. However, those outlining negative comments are squarely centered on the disruption COVID-19 is still playing on their business.”

Elsewhere, virus figures from Australia and the US are on the spike. The latest numbers suggest Texas marking over 7,300 new cases while Victoria witnesses near 360 people as the new sufferers of the pandemic. The latest surge in the disease threatens the commodity-linked currency’s recent upside. While citing the same, analysts at the Australia and New Zealand Banking Group (ANZ) say, “To date, opinions have been divided as to how quickly economies can recover from the damage caused by COVID-19. But as case numbers keep rising around the world sentiment appear to favor a slower recovery than a rapid bounce back – which is how we have expected the economic recovery from the pandemic to play out. This shift is starting to show up in the data such as the recent US consumer sentiment survey but is now yet reflected in equity markets. If new case numbers don’t subside soon then consumers are likely to be spooked further and become more conservative in their spending habits.”

To counter the same, global policymakers are trying their best to avoid the double-dip recession, as indicated by the Financial Times. The latest updates suggest that the Aussie Treasurer Josh Frydenberg is favoring increasing loan supply while policymakers are the European Union (EU) Summit inch closer to EUR 750 billion aid package. Further, Axios suggests the US House Leader Mitch McConnell might disappoint markets while narrowing the anticipated $3 trillion helps to $1 trillion.

Elsewhere, the US and China remain at loggerheads and keep jostling over one issue or the other. The latest spat mentions the Hong Kong security bill as the key issue.

Talking about the risks catalysts, S&P 500 mark 0.15% gains to 3,218 while the US 10-year Treasury yields await Japanese market open to extending recovery gains beyond 0.62%.

Although markets are likely to remain mostly sluggish amid a lack of major data/events, the US dollar weakness will join hopes of further aid to help the NZD/USD pair above 0.6500.

Technical analysis

Unless breaking a downward sloping trend line from July 09, at 0.6570 now, fears of the pair’s drop to 0.6500 can’t be ruled out. However, bears need to break the immediate support line around 0.6550 for the same.