NZD/USD bulls pressured as US strength shines through ahead of big week

• NZD/USD is pressured by the resurgence of the US dollar.
• Key data events will be challenging for the bird. 

NZD/USD ended the day a little lower on Friday, losing some 0.26% from the high of 0.5873 and reaching a low of 0.5782. The US dollar firmed into the final days of the week from a significant trendline support as traders get set for a very busy schedule this week that includes the Federal Reserve and US Nonfarm Payrolls as the highlights. 

While there is little in the way of domestic risks to start the week, the Reserve Bank of Australia is this week which could have an influence on the bird and there will be NZ jobs also. We also have the Chinese Official PMI (Oct) to start off the week. However, the event risk that is front and centre this week will be the FOMC and whether the board will decide not only a 75bp hike but due to the considerable uncertainty around the degree of hawkishness in the Fed’s guidance, the presser will be key. 

''The US PCE deflator may have come in a touch below expectations, but the core inflation is still very elevated,'' analysts at ANZ Bank argued. ''Locally, it’s almost guaranteed that the Q3 labour market statistics (out Wednesday) will clock the labour market at inflationary levels (we estimate the NAIRU is around 4.5%), but as is always the case, the volatile HLFS data is capable of producing a decent miss vs market expectations. Wages will be key, and while the hurdle is high to beat the RBNZ’s forecast (8.3% YoY for the QES), these data will at least confirm how advanced the wage-price spiral has become.''

RBA outlook

As for the RBA, it is expected to raise its cash rate by 25bps, according to 28 out of the 32 respondents polled by Reuters, whilst a handful look for a 50bps increase. Westpahas have been calling for a 50bps increase “in November for a terminal rate of 3.85% by March, revised up from 3.6%.” Analysts at NAB have argued for just a25bps hike. "In these circumstances, the RBA will need to move monetary policy into a more clearly restrictive territory to ensure inflation returns to target," NAB argued.