NZD/USD drops below 0.6320 on weaker-than-projected China’s Trade Balance

• NZD/USD has dropped below 0.6320 on the downbeat China Trade Balance and a recovery in risk-off impulse.
• China’s Trade Balance has slipped sharply to $69.84B in comparison with the estimates of $78.1B.
• This week, China’s inflation is seen lower at 1.0% vs. the former release of 2.1%.

The NZD/USD pair has witnessed intense selling pressure after failing to cross the critical resistance of 0.6350 in the Asian session. The Kiwi asset has been dumped by the market participants as China’s National Bureau of Statistics has reported downbeat Trade Balance data.

In US Dollar terms, Exports have dropped by 8.6% vs. the consensus of 3.5% and Imports have tumbled by 10.6% against the projections of 6.0%. China’s Trade Balance has slipped sharply to $69.84B in comparison with the estimates of $78.1B. It is worth noting that New Zealand is one of the leading trading partners of China and a weak China Trade Balance has a significant impact on New Zealand Dollar.

Meanwhile, the risk-aversion theme has strengthened further, and the appeal for safe-haven assets has increased. The US Dollar Index (DXY) has rebounded firmly after dropping to near 105.50 and is expected to extend its gains above the fresh four-day high of 105.69. S&P500 futures are displaying a rangebound structure after a sell-off on Tuesday, portraying pessimism for risk-sensitive assets. The 10-year US Treasury yields have resurfaced above 3.55%.

Going forward, investors will focus on the release of China’s Consumer Price Index (CPI), which will release on Friday. As per the projections, the annual CPI is expected to drop vigorously to 1.0% from the prior release of 2.1%. This could force the People’s Bank of China (PBOC) to ease policy further. Also, easing Covid19 restrictions in China has fuelled optimism, which could be carried further by stimulus packages effectively.