US NFP, RBNZ Rate Hike Expectations, Market Sentiment

  


Key Talking Points:

  • NZD/USD lacking momentum ahead of NFP data release
  • Market expectations on RBNZ rate hikes leave the kiwi facing an uphill battle

The New Zealand Dollar has been struggling to find a clear direction since coming off those early September highs. The kiwi has lost most of the upper hand against the Dollar but has managed to keep gains capped against the Euro and the Pound given turmoil of their own. Even the rate hike from the RBNZ on Wednesday didn’t offer much support given how markets had excessively priced in a hawkish meeting, which likely leaves investors wondering what’s next.

Money markets are still pricing in two other rate hikes by February 2022, which means a 25 bps in the upcoming meeting, leaving little room for error and making the outlook for NZD rather worrying. If the RBNZ can deliver then the kiwi is likely to be supported but will lack meaningful momentum unless the bank turns out to be more hawkish than currently priced in. The bigger risk is a drop in economic data and sentiment which would delay the rate hike schedule, as we saw back in the August meeting, causing the NZD to be a clear underperformer.

So far today the sentiment in markets is pretty upbeat after Senator Mitch McConnel, leader of the Republican party at the Senate, announced he agreed to increase the debt ceiling in the short term until December. I think there was little risk of the US being allowed to default on its debt but the confirmation has still offered a change in sentiment, following on from Putin’s helping hand to stop the rising energy prices in Europe.

Focus today is on the latest NFP report. The ADP reading on Wednesday showed that 568 thousand jobs were added in the month of September, up from 340 thousand in August. That is a good reading heading into this afternoon’s release as markets are expecting the NFP data to show around 500 thousand new jobs in September, after a rather disappointing reading in August, when only 235 thousand of the 750 thousand expected actually materialized. There is a lot riding on a strong reading today as the Fed is pretty much ready to begin reducing asset purchases in November, but a weaker than expected NFP figure might see the actual start of tapering delayed.

NZD/USD is back within its long-term support area around 0.69 despite seeing a strong breakout at the end of August. Dollar weakness was mostly the reason back then and its also been moving the pair lower since the beginning of September as higher yields have been keeping USD supported. The pair is likely to resume its downtrend if it breaks below 0.6880 with 0.6800 being the next support up ahead. NZD/USD is currently lacking the potential to break above the range at 0.6940 unless we see a weaker dollar on the back of the NFP data disappointing.

If bullish momentum consolidates the move towards 0.70 should be too hard but a confluence of moving averages around 0.7010 would likely weaken the push towards its key resistance range at 0.7048 – 0.7093, where momentum dried up on the 23rd of September.

NZD/USD Daily chart

NZD/USD Outlook: US NFP, RBNZ Rate Hike Expectations, Market Sentiment

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— Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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