AUD/NZD bears are lurking with RBNZ in focus

• AUD/NZD holds steady in a quiet session in Asia so far. 
• The markets are looking ahead to today's NFP while thoughts on the RBNZ support to NZD.

At 1.10787, AUD/NZD is flat on a quiet day in Asia with regional markets closed in some parts of APAC territories and ahead of the US Nonfarm Payrolls event in the US session. Markets rallied overnight on mixed data which dented the UIS dollar and supported the risk currencies, such as the Aussie and kiwi. The US dollar fell sharply while AUD/USD moved up to 6-week highs around 0.7265, aided by a 5% bounce in iron ore prices and higher oil following the OPEC+ meeting.

Global equity markets rose while US yields were lower on Thursday after lower-than-expected private payrolls data stirred hopes that the American economy was likely cooling and the Federal Reserve might be persuaded to modify its aggressive stance on interest rates and inflation. Ahead of today's NFP, the ADP National Employment Report on Thursday showed that private payrolls rose by 128,000 jobs in May, which was much lower than the consensus estimate of 300,000 jobs.

A chorus of Federal Reserve speakers, including Fed Vice Chair Lael Brainard said market pricing for 50bp hikes in June and July seems like a reasonable path, and that it’s very hard to see the case for a pause in September. She said further hikes would be dependent on inflation data. Fed Reserve Bank of Cleveland President Loretta Mester echoed her comments.

Nevertheless, stocks moved up and the US 10-year yield fell 0.2bps to 2.91%. The S&P and the Dow rallied from earlier session losses and closed higher. The Dow Jones Industrial Average added1.33% to 33,248.28, while the S&P 500  put on 1.84% to 4,176.82 and the Nasdaq Composite moved higher by 2.69% to 12,316.90.

''Given the backdrop of the rolling thermal energy crises driving sharp gains in prices, plus China’s shotgun approach to policy designed to turn the stalling economy round, the lift in risk sentiment and the AUD is understandable. However, with the Fed set to raise rates another 50bp in less than three weeks, the 0.72 area should cap the AUD move for now,'' analysts at Westpac argued.

''We remain focused on looking for opportunities to buy any dips to around 0.70.''

RBNZ in focus

NZ-US yield spreads jumped in response to the hawkish RBNZ last week, and are also more supportive of the local currency. There’s potential to reach 0.6600 during the week ahead, and we’ll be watching for corrective pullbacks which may provide entry opportunities into medium-term long NZD/USD positions,'' they said. 

With the RBNZ in focus, the analysts said, ''the RBNZ forecasts a peak OCR of 4.0%, while markets price 4.3%. We expect this state to persist until there is evidence that inflationary pressures are starting to subside (the next inflation data update is for Q2 in July). That said, markets are now reluctant to price too much beyond 2023, given the track’s downward inflection from 2024.''