NZD/USD drops ahead of NFP as US dollar attracts a safe haven bid

• NZD/USD bears pile in again as the US dollar attracts a safe-haven bid.
• DXY rallies to fresh bull cycle highs, sinking the bird ahead of NFP.

At 0.6421, NZD/USD is down some 1.88% after falling from a high of 0.6568 to a low of 0.6393 as investors move back into the US dollar as a discount. The greenback rallied to a fresh bull cycle high as per the DXY index that measures the US dollar vs. six major rivals.   

''The Kiwi is significantly lower this morning, having slid around 1½ cents from yesterday’s peak as post-Fed optimism faded, the USD regained its erstwhile solid footing, equity indices sank and bond yields surged,'' analysts at ANZ Bank explained. 

''There wasn’t really anything Kiwi-specific in the mix; rather it was just a global tornado of risk capitulation. Readers will be aware that we had been expecting a post-Fed risk rally, and there were always question marks about how long-lived it would be, but few likely would have picked this quick a turnaround.''

The catalyst today came from a bearish rate hike from the Bank of England, warning of price pressures and wage deflation, and ultimately putting the fear of stagflation into the markets. Additionally, the economic data from outside of the US continues to disappoint with Chinese PMI's sinking deeper within already contracting territory.

Weak German data that was showing that industrial orders in March suffered their biggest monthly drop since last October hammered down the coffin for the euro on Thursday. Consequently, the greenback was boosted by safe-haven buying as global equities come back under pressure. 

''Price action of this sort will likely leave a sour taste in many people’s mouths, and in the wake of it, one has to consider the possibility that the typical early-cycle USD fade gets hijacked by volatility (and not just the Ukraine crisis and BoJ policy),'' analysts at ANZ Bank warned 

Eyes turn to NFP

It is now all about the Nonfarm Payrolls. 

''Whilst the Fed is not currently considering a 75bps rate increase, that guidance is based on expectations that the trend increase in monthly Nonfarm payrolls will slow and core inflation is stabilising. But there are no guarantees at all that that will be the case,'' analysts at ANZ Bank explained.

''Demand for labour in the US remains very strong and core services inflation is rising steadily. The April non-farm payroll and employment reports tomorrow night, therefore, carry a lot of significance.''