NZD/USD Edges Higher as Asia-Pacific Traders Monitor Russia, Ukraine Tensions

New Zealand Dollar, NZD/USD, NZ PSI, Russia, Asia-Pacific – Talking Points

• New Zealand’s services sector remained in contraction in January, according to BusinessNZ
• Traders are closely monitoring Ukraine after the US cites a possibility of invasion this week
• NZD/USD is in danger of reversing recent gains as prices trade within a Bear Flag pattern

Monday’s Asia-Pacific Outlook

Asia-Pacific markets may be on edge today as the chance of military conflict looms in Eastern Europe. That, along with an aggressive shift in Fed rate hike expectations, saw high-beta assets sell off last week while the safe-haven US Dollar gained. Gold, often viewed as a store of value amid volatility, had its best week since May 2020, gaining 2.82% despite a surging Greenback. The Australian and New Zealand Dollars also gained against the stronger USD. Australia and New Zealand are less susceptible to the geopolitical fallout that could occur if Russia were to invade Ukraine.

While Asian markets are indeed relatively more cushioned from a potential conflict in Europe, a Russian incursion into Ukraine would likely spark a global risk-off move and drive oil prices higher. US intelligence has signaled that such an action may take place this week, according to US National Security Advisor Jake Sullivan. Mr. Sullivan said the US and its NATO allies “should prepare for the potential of a major military action in the coming days” on Sunday.

This morning, New Zealand’s Performance of Services Index (PSI) fell to 45.9 in January from December’s 49.7 read. That compares to January’s NZ Performance of Manufacturing Index (PMI) released last week at 52.1, which was a drop of 1.7 index points from December. The slowdown was largely attributable to the impact of the Omicron variant of Covid-19. The Reserve Bank of New Zealand will meet later this month on February 23, when it is expected to deliver another 25-basis-point rate hike.

The economic docket for the remainder of the day is light, which will leave traders watching price action and newswires out of Eastern Europe. China will report January vehicle sales and foreign direct investment data today. The People’s Bank of China (PBOC) said on Friday it would provide sufficient liquidity and increase financing support for key economic sectors in its latest implementation report.

That follows new Yuan loans hitting a record high in January, as policy makers move to shore up economic strength to fight slowing growth. Chinese Premier Li Keqiang said on Sunday that China would bolster support for its agriculture sector in the coming spring months by helping to secure fertilizer supply and provide price stability. Earlier this month, the United States reported China fell short of its imports goal on soybeans and other products in 2020, failing to meet quotas agreed with former President Trump earlier that year.

New Zealand Dollar Technical Forecast

NZD/USD is trading within a Bear Flag pattern, leaving prices susceptible to a breakdown if flag support fails. Prices could fall to trendline support if that occurs, with intermediate levels of possible support from the 61.8% and 78.6% Fibonacci retracements. The technical structure on the 8-hour chart appears rather weak, given the falling Relative Strength Index moving below 50 and MACD nearing a cross below its center line.

NZD/USD 8-Hour Chart

Chart created with TradingView

--- Written by Thomas Westwater, Analyst for DailyFX.com

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