NZD/USD trims post-Fed gains above 0.7200 as New Zealand Q4 GDP disappoints

• NZD/USD drops around 20 pips following the surprise drop in NZ GDP.
• New Zealand’s fourth-quarter (Q4) GDP came in -1.0% versus +0.1% QoQ forecasts.
• Post-Fed risk-on mood battles geopolitical headlines suggesting the US tussles with China, North Korea and Iran to probe the bulls.
• Aussie data, risk catalysts will be the key for now.

NZD/USD pushes the bulls back while declining over 20 pips around 0.7230 after New Zealand (NZ) Q4 GDP disappoints kiwi optimists during the early Thursday morning in Asia. Also favoring the consolidation are the challenges to the risks and hidden hints of a gradual pick-up in rates after a few years in the Fed statement.

NZ GDP probes kiwi bulls…

Although lockdown in Auckland was a wild card that played its role in smashing hopes of no major losses in the GDP, the -1.0% QoQ reading, versus +0.1% forecast and revised down 13.9% prior, is a surprise for the NZD/USD buyers.

Read: New Zealand GDP Q4: Posts a1.0% fall vs 0.2% expected, Kiwi giving back gains

The kiwi pair recently cheered the US Federal Reserve’s inability to provide clear hints of sooner rate hikes even as the upward revision to the economic forecasts was a welcome sign. It should, however, be noted that seven policymakers see a lift-off in the fed funds rate from zero in 2023 versus five in December. Hence, reflation fears aren’t down and may return on the re-read of the dot-plot.

Also likely to challenge the pair could be fresh US tussles with China, North Korea and Iran as well as the European countries’ rejection to use AstraZeneca covid vaccine. On the contrary, the US stimulus and American Secretary of State Antony Blinken’s Asia trip keep the buyers hopeful.

Amid these plays, Wall Street managed to end Wednesday on a positive side despite earlier losses whereas the US 10-year Treasury yield refreshed the 13-month top.

Having witnessed the initial reaction to the NZ data, Australia’s employment figures are left to observe for the NZD/USD traders. Though, major attention will be given to the market’s second thoughts on the Fed’s latest action, actually inaction, as well as the challenges to the sentiment mentioned above. Against this backdrop, the kiwi pair is likely to retrace the Fed-led gains unless any surprise recalls the bulls.

Technical analysis

NZD/USD couldn’t break 21-day SMA, at 0.7245 now, on a daily closing basis, despite the latest rally, which in turn signals a pullback. However, 50-day SMA near 0.7215 can test the bears before directing them to an ascending trend line from December 21, 2020, currently around 0.7115.