NZD / USD considers credit risk in China after PSI failure


New Zealand Dollar, NZD / USD, PSI Services, PSI, China, Credit Markets – Talking Points

  • New Zealand PSI shows second monthly slowdown as lockdowns weigh in
  • Systemic risks in the Chinese real estate market weigh on sentiment
  • NZD / USD targets 50-day SMA after Bull Flag model fails to push price up

Monday’s Asia-Pacific Forecast

The New Zealand dollar soars to a weak start as the trading week begins in the Asia-Pacific region. A pessimistic BusinessNZ Service Performance Index (PSI) crossed the threads this morning. The August reading fell to 35.6 from 57.9 in July. This marks a contraction in activity and the second consecutive slowdown from Junee.

NZD / USD is slightly lower in morning exchanges. A fragile global Covid situation along with equity valuation issues saw the safe haven of the US dollar gain due to the sale of risky assets Last week. New Zealand has lowered level four lockdown restrictions across much of the country. However, Auckland – the most populous city in the country – has kept strict measures in place. Those restrictions may to deploy themselves spent this week, with an announcementdue today.

Traders are considering several potentially high-impact central bank rate decisions set for this week. Bank of Japan policy move to cross wires first on Wednesday. The Federal Reserve is also set for Wednesday’s US session. Finally, the Bank of England will report on Thursday. The three central banks are expected to keep their benchmark rates unchanged, according to Bloomberg surveys.

Meanwhile, traders will focus on a potential credit crunch in China. The Chinese real estate titan Evergrande weighs 300 billion dollars in debt. Credit markets began to show stress after the company revealed it was unable to sell assets quickly enough to service its debts. Now, a potential default on payments owed to two major banks on Tuesday threatens to further disrupt credit markets.

Some draw similarities to the US financial crisis of 2007, when a collapse in the housing market triggered a global recession. This probably explains part of the risk aversion movement in financial markets over the past two weeks. This situation presents a systemic risk unlike anything traders have seen since the start of the Covid pandemic.

New Zealand Dollar Technical Forecasts

The New Zealand dollar is down against the US dollar, following its declining trend since last week. Prices broke the support of the bullish flag last week, ending the chances of a breakout. The 50-day simple moving average is the focus of attention after the NZD / USD broke through the 38.2% Fibonacci level and an earlier support level. That said, further weakness may be likely in today’s session.

NZD / USD 4 hour chart

Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com

Contact Thomas, use the comments section below or @FxWestwateron Twitter

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