FX

NZD/USD looks vulnerable above 0.6170 as Fed favors more rates despite easing labor market

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  • NZD/USD is expected to witness a downside after the conclusion of the short-lived pullback to near 0.6170.
  • Fed policymakers are supporting more conservative monetary policy despite easing US labor market conditions.
  • A significant decline in NZ inflation indicates that the RBNZ is well on track of arresting sticky inflation.

The NZD/USD pair is hovering above 0.6170 in the early Asian session after a less-confident recovery move from 0.6150. The Kiwi asset is expected to resume its downside journey below 0.6150 as Federal Reserve (Fed) policymakers are supporting more conservative monetary policy from the central bank despite easing United States labor market conditions.

S&P500 futures are showing nominal gains in the Asian session after three consecutive bearish settlements, indicating that the overall market sentiment is quite negative. US equities faced extreme pressure on Thursday as investors showed dissatisfaction with the price-cutting spree by Electric Vehicle (EV) maker Tesla.

The US Dollar Index (DXY) has been muted after a volatile session on Thursday ahead of the release of the preliminary US S&P PMI data. As per the consensus, the Manufacturing PMI will land at 49.0, lower than the former release of 49.2. The Services PMI is also seen lower at 51.5 against the figure of 52.6 released earlier. A contraction in economic activities indicates a decline in the overall demand, which would cement the expectations of a slowdown ahead.

US weekly jobless claims data, released on Thursday, supported the view of easing labor market conditions. The Department of Labor showed a jump in jobless claims for the week ending April 14 at 245K higher than the consensus of 240K.

Meanwhile, Fed policymakers are still confident of one more rate hike ahead. St. Louis Fed President James Bullard advocated for the continuation of a policy-tightening spell by the central bank considering the fact that labor market data is still solid, as reported by Reuters. Fed policymaker further added that demand for labor has not softened yet and a strong labor market leads to strong consumption.

The New Zealand Dollar remained in action on Thursday after the release of lower-than-anticipated inflation data. In the first quarter, inflationary pressures accelerated by 1.2% vs. the consensus of 1.7% and the former release of 1.4%. Annual inflation softened to 6.7% while the street was anticipating a marginal deceleration to 7.1% from the prior release of 7.2%.

A significant decline in Kiwi inflation indicates that the Reserve Bank of New Zealand (RBNZ) is on the right track to arresting stick inflation. Investors should be aware of the fact that RBNZ Governor Adrian Orr raised interest rates surprisingly by 50 basis points (bps) to 5.25% in its last monetary policy meeting held on April 05.

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