NZD/USD stays defensive around 0.6800 amid market’s anxiety over Ukraine, Fed

• NZD/USD snapped five-week uptrend, remains pressured of late.
• Upbeat sentiment concerning Ukraine-Russia peace talks, US-China meeting keeps buyers hopeful.
• Russian updates to sanction the West, fears of further shelling challenge the mood.
• Fed’s rate hike is in focus amid Ukraine war, multi-year high inflation.

NZD/USD struggles to cheer the market’s cautious optimism during the early hours of Monday’s Asian session, remains pressured around 0.6800 by the press time.

Although the S&P 500 Futures print half a percent of intraday gain to cheer positive progress on the Ukraine-Russia peace talks, the kiwi pair remain depressed after snapping the five-week uptrend by the end of the last week. The reason could be linked to the Russian diplomats’ warnings to the West and the looming fears of more shelling on Kyiv. Also challenging the NZD/USD prices could be the market’s cautious mood ahead of the key Federal Reserve (Fed) monetary policy meeting amid indecision over the pace of the rate hikes.

During the weekend, Reuters confirmed upbeat developments on the Moscow-Kyiv talks following the positive updates from negotiations between Russia and Ukraine by Russian President Vladimir Putin on Friday. “Russian and Ukrainian officials gave their most upbeat assessments yet on Sunday of progress in their talks on the war in Ukraine, suggesting there could be positive results within days,” said Reuters during the late Sunday’s news.

On the same line was the news from Bloomberg that diplomats from the US and China will meet for the first time in person since the Ukraine-Russia crisis began on Monday.

On the contrary, the Wall Street Journal (WSJ) quoted an anonymous person familiar with the matter while saying, “Russian prosecutors have issued warnings to Western companies in Russia, threatening to arrest corporate leaders there who criticize the government or to seize assets of companies that withdraw from the country.” The comments were joined by the news from Sputnik quoting Russian FM saying, “Moscow will not ask western sanctions to be lifted, pressure will not change its course.” Additionally, comments from Pentagon's press secretary John Kirby, quoted by ABC News, suggesting Russian forces are "broadening their target sets" after rockets hit a Ukrainian military base near the Polish border overnight.

Elsewhere, record-high US inflation expectations, per the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, jumped to the record high on Friday and raised prospects of the Fed’s 0.50% rate lift. However, downbeat prints of the Michigan Consumer Sentiment for March, down 3.1 points to 59.7, tested the US dollar bulls. “We think the Fed will show sensitivity towards the Ukraine crisis and its potential to impact the economy, but its primary focus has to be addressing inflation, given its assessment of full employment,” said ANZ.

Hence, the indecision over the positive developments battles the market fears and hence weighs on the NZD/USD prices of late. It’s worth noting that a slump in the New Zealand Visitor Arrivals, -26% versus 4.4% prior, also challenges the pair.

Moving on, a light calendar on Monday and cautious mood ahead of the Fed may exert downside pressure on the pair. However, any positive updates over the US-China or the Ukraine-Russia issues may help the NZD/USD to consolidate the last week’s losses.

Technical analysis

Failures to stay beyond 100-DMA, around 0.6820 by the press time, keep NZD/USD bears hopeful to witness a drop towards an ascending support line from late January, near 0.6715 at the latest.