NZD/USD rebounds from 0.5800, downside still solid on Fed-infused volatility, US NFP eyed

• NZD/USD has witnessed a rebound from 0.5800, however, the risk-off profile is intact.
• The Fed has kept hawkish guidance on the policy as short-term inflation expectations are not anchored yet.
• Kiwi investors will focus on Caixin Services PMI data ahead.

The NZD/USD pair has displayed a pullback move after dropping to near the round-level support of 0.5800 in the Tokyo session. The pullback move seems to lack confidence as the market pulse is still risk-averse after the hawkish stance on policy rates and guidance by the Federal Reserve (Fed).

After a bloodbath, S&P500 has witnessed a pause in the downside momentum, however, the pessimism is still high as corporate would require to come forward with lower earnings guidance and impact on net profit margins due to the fourth consecutive 75 basis points (bps) by the Fed. Meanwhile, the US dollar index (DXY) has dropped marginally to near 112.00.

Citing inflationary pressures as responsible for a bigger rate hike, Fed chair Jerome Powell has also provided hawkish guidance. Fed policymaker doesn’t see any pause in the policy tightening cycle yet as short-term inflation expectations are still not anchored. This has pushed the 10-year US Treasury yields at 4.12%.

This week, the US Nonfarm Payrolls (NFP) data will be of utmost importance. The US NFP is seen lower at 200k vs. the prior release of 263k. While the jobless rate will increase to 3.6% from the former print of 3.5%. Employment generation in the US economy is increasing but at a diminishing rate that could compel the Fed in the December monetary policy meeting to slow down its pace of hiking interest rates. Also, lower consumer spending could de-rail the 75-bps rate hike spell.

On the NZ front, investors will keep an eye on Caixin Services PMI data. The economic data is likely to bring adjustment in the asset as NZ is a leading trading partner of China, therefore Chinese services activities have a significant impact on kiwi dollar.