NZD/USD ebbs back below 0.6650 in pre-NFP profit taking, as traders brace for incoming volatility

• NZD/USD has been ebbing lower amid pre-NFP profit-taking though remains within recent intraday ranges and up on the week.
• The pair currently trades in the 0.6630 area, with technicians eyeing 0.6530 support and 0.6700 resistance.

Pre-US jobs data nerves has seen NZD/USD pare some its recent gains this Friday, with the pair dipping back under the 0.6650 level in recent trade and currently trading lower by about 0.4% on the session. Profit-taking in the run-up to the release of the January US labour market report has seen the pair slide back from earlier weekly highs in the 0.6680s to current levels around 0.6630, though some dip-buying is offering some support ahead of Thursday’s 0.6610 lows. On the week, the kiwi still trades with gains of about 1.4% versus the buck, though things are likely to be choppy post-US jobs data release and a close at current levels seems unlikely.

Regarding the upcoming US data; the latest report from the US Bureau of Labour Statistics is expected to reveal a slowdown in the pace of US job creation last month as the rapid spread of the Omicron Covid-19 variant disrupted normal labour market churn. That could manifest itself in a negative headline non-farm payroll employment change number. FX market participants will also be paying close attention to measures of labour market slack and wage growth, as the Fed worries that labour market tightness and resultant wage growth presents upside risks to near-term inflation.

Indeed, the US dollar will be choppy on the Average Hourly Earning component of the upcoming report. An upside surprise could send NZD/USD lower as traders price in a more aggressive Fed hiking cycle, while a downside surprise could send the pair higher. To the downside, traders should keep an eye on support in the form of last week’s lows in the 0.6530s, while to the upside, resistance in the form of this week’s highs in the 0.6680s and the 2021 lows at 0.6700 should be noted.