NZD/USD flirts with one-month high near 0.6300 as USD braces for NFP

• NZD/USD prints four-day uptrend near the highest levels since early April.
• US Dollar reverses Thursday’s corrective bounce as Fed rate cut bets increase.
• Softer China PMI fails to prod Kiwi pair buyers amid cautious optimism, hawkish RBNZ concerns.
• US NFP needs to defy downbeat expectations to avoid further NZD/USD upside.

NZD/USD stays on the front foot at the highest levels in a month, up half a percent near 0.6310 heading into Friday’s European session. In doing so, the Kiwi pair cheers broad-based US Dollar weakness ahead of the US Nonfarm Payrolls (NFP) data. Adding strength to the bullish bias could be the latest divergence between the Federal Reserve (Fed) and the Reserve Bank of New Zealand (RBNZ) bias.

Federal Reserve (Fed) hints to pause the rate hike trajectory after lifting the benchmark interest rates to the highest levels since 2007. The same joins Fed Chairman Jerome Powell’s cautious remarks, by suggesting the current monetary policy is at sufficiently restrictive levels.

Following that, Thursday’s mixed US data and increasing market bets on the Fed’s September 2023 rate hike add strength to the NZD/USD run-up.

That said, preliminary readings of the US Nonfarm Productivity and Unit Labor Cost for the first quarter (Q1) of 2023 came in mixed. That said, Nonfarm Productivity dropped to -2.7% in Q1 from 1.6% prior and -1.8% market forecasts whereas the Unit Labor Cost jumped to 6.3% versus 5.5% expected and 3.3% prior. Further, the US Goods and Services Trade Balance improved to $-64.2B from $-70.6B prior and the $-63.3B market forecast. Further, Initial Jobless Claims edge higher to 242K for the week ended on April 28 versus 240K expected and 229K in previous readings. Additionally, the Fed Fund Futures hint at increasing odds of the rate cut in late 2023.

On the other hand, the RBNZ has already pleased the NZD/USD hawks with a 0.50% rate hike even if RBNZ Governor Adrian Orr cited negative impacts of higher rates on farms earlier in the week.

With these catalysts in mind, ANZ said, “Exactly what’s behind this unique performance (it has been the best performing G10 currency this month and is up 1¾% already) is difficult to pinpoint, but strong local data and widespread markets expectations that the Fed is done this cycle is likely playing a role.”

Moving on, NZD/USD bull may witness lackluster moves ahead of the key US employment data for April. However, the odds favoring the pair’s retreat are high as forecasts suggest downbeat prints of the headline US Nonfarm Payrolls (NFP), expected 179K versus 236K prior, while the early signals for the data appear strong.

Technical analysis

A daily closing beyond the three-month-old resistance line, near 0.6325 by the press time, becomes necessary for the NZD/USD bulls to keep the reins.