NZD/USD goes inside the woods, the spotlight is on US NFP

• NZD/USD has turned sideways after a firmer upside move as the US NFP hogged the limelight.
• The Fed is going to reduce its bumper balance sheet vigorously.
• The kiwi administration is enjoying a tight labor market.

The NZD/USD pair has witnessed some long liquidation after failing to sustain above 0.6560. The asset is expected to display back and forth moves in a narrow range of 0.6531-0.6568 after a juggernaut upside move. No one could deny the fact that consistent employment data by Statistics New Zealand on Wednesday failed to entertain the kiwi bulls but the in-line hawkish tone by the Federal Reserve (Fed) in its monetary policy announcement has strengthened the antipodean.

The Fed announced a rate hike by 50 basis points (bps) and a balance sheet reduction by $95 billion worth of assets ($60 billion of Treasuries and $35 billion of mortgage-backed securities (MBS)) monthly. One can understand the need of barricading the soaring inflation by observing the pace dictated by the Fed to reduce its bumper $9 trillion balance sheet. The Fed reduced its balance sheet size by $50 billion worth of assets on monthly basis in the 2017-19 rate hike cycle. This time the pace to cut assets in its balance sheet is almost doubled. The US inflation has been recorded at a four-decade high of 8.5% and it is hurting the real income of the households.

On the kiwi front, Statistics New Zealand reported the jobless rate at 3.2% while the Employment Change to 0.1% on Wednesday. The consistency in maintaining full employment levels determines the tight labor market, which benefits the Reserve Bank of New Zealand (RBNZ) to hike interest rates without much concern.

Going forward, investors will keep the release of the US Nonfarm Payrolls (NFP) on the radar. A preliminary estimate for the US NFP is 394k in comparison with the previous figure of 431k.