• NZD/USD defends the bounce off three-week low, stays sidelined of late.
• New Zealand trade deficit increased in November, Exports and Imports also rose.
• Market sentiment dwindles after Bank of Japan-inspired moves, contracting yield curve inversion eases recession woes.
• Second-tier US data eyed for near-term directions as US Dollar stays depressed.

NZD/USD dropped to the lowest levels in three weeks before recently bouncing off 0.6300, making rounds to 0.6350 during early Wednesday. The Kiwi pair’s latest rebound could be linked to the downbeat US Dollar but pays little heed to New Zealand (NZ) trade numbers for November.

New Zealand Trade Balance for November dropped to $-14.63B YoY and $-1,863M MoM versus the expected prints of $12.71B and $-1,091M respective market forecasts. That said, the previous readings were revised down to $-13.86B and $-2,298M. Details suggest that the Imports rose to $8.54B from $8.26B whereas Exports also increase to 6.68B versus $5.96B prior. 

Additionally important were the monthly figures of New Zealand’s ANZ-Roy Morgan Consumer Confidence Index that slumped to the lowest levels since 2004, to 73.8 for December versus 80.7 prior.

Previously, the Kiwi pair failed to cheer the broad US Dollar weakness as market sentiment worsened in the Asia-Pacific due to the Bank of Japan’s (BOJ) slight change in the monetary policy parameters. The Japanese central bank kept the monetary policy unchanged but widened the band of Yield Curve Control (YCC) to -/+ 0.5% from -/+0.25% prior.

That said, the US Dollar Index (DXY) dropped the most in a week the previous day, down 0.67% intraday to 103.95, as the greenback traders feared less Japanese bond-buying from the US due to the BOJ action. It’s worth noting that Japan is the biggest holder of the US Treasury bonds and the latest move allows Tokyo to put more funds into the nation than letting it flow outside.

Other than the BOJ-led moves, fears of China’s slower growth, backed by the World Bank’s downbeat economic forecasts, also weighed on the NZD/USD prices.

It’s worth noting that Wall Street closed on the positive side as the US Treasury bond yields rallied. Among them, the 10-year counterpart rose more than the two-year ones and hence reduced the yield curve inversion that suggests the odds of the recession.

Talking about the data, US Housing Starts declined by 0.5% MoM in November following October's 2.1% contraction while Building Permits fell by 11.2% versus a 3.3% drop recorded in the previous month.

Looking forward, US CB Consumer Confidence for December and Existing Home Sales for November will be important to watch. However, major attention will be given to the risk catalysts for fresh impulse.

Technical analysis

NZD/USD bounces off 21-DMA, around 0.6335 by the press time, to defend buyers. Even so, recovery remains elusive below the 0.6400 hurdle.