NZD/USD declines below 0.5660, on Fed speaking, ahead of US NFP

• NZD/USD remains gaining during the week, more than 1%.
• US central bank policymakers continued with the higher interest rates-for-longer narrative for the fourth consecutive day.
• Fed’s Evans estimates the Federal funds rate (FFR) to peak around 4.50-4.75%.

The NZD/USD plummeted as Wall Street’s entered its last hour of trading due to risk aversion, as US jobs data was mixed, while Fed officials’ hawkish narrative persists, as stubbornly as high inflation impacting the US economy.

A the time of writing, the NZD/USD is trading at around 0.5650s after hitting a daily high of 0.5813, shy of the 20-day EMA, diving close to 100 pips in the day, despite Wednesday’s RBNZ 50 bps rate hike, which bolstered the NZD/USD, keeping price action above the 0.5700 thresholds.

The Fed parade continued on Thursday. Fed Governor Lisa Cook expressed that inflation is “stubbornly and unacceptably high” and added that she supported the three 0.75% rate hikes, as front loading will accelerate the impact of the monetary policy.

Of late, the Chicago Fed President Charles Evans said that the Federal funds rate (FFR) is headed towards 4.5-4.75% by  March 2023 and added, “we have further to go in rates.” According to him, the Federal Reserve needed to hike 125 bps in the last two meetings of the year, emphasizing the need to get more restrictive.

Earlier, the Minnesota Fed President Neil Kashkari expressed that the fed needs “more work to do” to temper inflation down while adding that a pause in hiking rates is “quite a ways away.” Kashkari commented that he’s not “comfortable saying that we (the Fed) are going to pause” unless they see compelling evidence that inflation is cooling.

Data-wise, the US Initial Jobless Claims for the week that ended on October 1, rose by 219K, above estimates of 204K, signaling that the labor market is cooling. Nevertheless, it should be noted that Wednesday’s ADP Employment Change showed that private hiring increased by 208K. Exceeding estimates of just 132K. All that said, traders’ focus is on the Nonfarm Payrolls report.

In the meantime, the US Dollar Index, a measure of the buck’s value against its peers, is climbing almost 1%, at 112.233, a headwind for the NZD/USD.

Elsewhere, on Wednesday, the Reserve Bank of New Zealand hiked rates by 50 bps. Initially, the NZD/USD was contained from falling and recorded a weekly high at 0.5813. However, as the Fed pivot narrative dissipated and sentiment shifted sour, broad US dollar strength was a headwind for the NZD/USD.

What to watch

An absent New Zealand docket will leave traders leaning on the US Nonfarm Payrolls report, alongside further Fed speaking, led by NY Fed John Williams, Minnesota Fed Neil Kashkari and Atlanta’s Fed Raphael Bostic.

NZD/USD Key Technical Levels