NZD/USD clears daily gains after NFP data

• The Kiwi peaked at a five-day high at 0.6111 and then fell to the 0.6065 area.
• Despite labor demand in the US showing a deceleration, the figures showed a robust employment growth.
• The Greenback gained interest on the back of increasing US yields.

The NZD/USD pair erased gains which saw the Kiwi surging to the 0.6111 area at the end of the week and fell towards the 0.6065 area, in response to strong labor market data from the US. The data suggested a potential reassessment of additional rate hikes by the Federal Reserve (Fed) which consequently favored the US Dollar amid rising US bond yields. 

Greenback gains on rising US bond yields following NFP 

According to the US Bureau of Labor Statistics, employment in the United States surpassed expectations by increasing by 339k in May, exceeding the consensus forecast of 190k. However, the Unemployment Rate rose slightly, reaching 3.7% instead of the expected 3.5%. Average Hourly Earnings, which serves as a gauge of wage inflation, stood at 4.3% YoY, slightly below the projected 4.4%.

The overall labor market outlook suggests that labor demand is showing some deceleration but the robust employment growth and the increasing inflationary pressures indicate that these developments make a case for the Fed to reconsider a 25 basis points (bps) hike in the upcoming June meeting. As a result, US bond yields are experiencing an upward trend. The 10-year bond yield has increased to 3.68%, reflecting a gain of 2.70% for the day. Similarly, the 2-year yield stands at 4.51% with an increase of 3.64%, and the 5-year yield is at 3.84% up by 3.81%.

As the Fed officials mention, their ultimate goal is to assure full-employment and price stability, so the May Consumer Price Index (CPI), to be release next week, will play a crucial role in influencing the expectations and considerations of the Federal Open Market Committee (FOMC) regarding the next interest rate decision. As for now, the CME FedWatch tool suggests markets are still discounting higher probabilities of no hike for the next June 13-14 meeting but the case of a 25 bps hike gained some relevance.

Levels to watch

According to the daily chart, the NZD/USD  holds a bearish outlook for the short term as the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD) suggest that the sellers are in control while the pair trades below its main moving averages.

In case of further downside, support levels line up at the 0.6050 area and below at the 0.6025 zone and the 0.60 psychological mark. On the upside, resistances line up at the daily high around 0.6111 followed by the 200 and 20-day Simple Moving Average (SMA) at 0.6150 and 0.6180 respectively.