NZD/USD erases some of Tuesday’s losses and hovers around 0.6300

• The NZD/USD rises courtesy of an improvement in market sentiment.
• US economic data was mixed with prices easing, while the labor market remains tight, supporting further Fed tightening.
• Minnesota Fed’s Kashkari foresees rates peaking at around 5.4%.

The New Zealand Dollar (NZD) snapped two days of losses against the US Dollar (USD), as economic data released in the United States (US), showed the labor market remains tight while manufacturing activity continues to contract. All this in an upbeat mood spurred on China’s news. At the time of writing, the NZD/USD is trading at 0.6299..

US manufacturing activity slides while inflationary pressures ease

Traders’ mood remains optimistic as high beta currencies rose. The NZD/USD slipped from daily highs around 0.6352 at the release of mixed US economic data. The Institute for Supply Management (ISM) revealed that Manufacturing PMI for December dropped to 48.4, exceeding estimates for a fall to 48.5, extending its downtrend for the second consecutive month. The report highlighted that prices and demand are slowing, a welcomed development for the Federal Reserve (Fed), while the employment subcomponent expanded, implying the tightness of the labor market.

At the same time, the November US JOLTs reported that vacancies rose to 10.458M, higher than the 10.0M estimated by analysts. October figures were upward revised to 10.512M, almost 200K more than the reported data, further cementing the case for additional Fed action.

Meanwhile, Minnesota’s Fed President Neil Kashkari (voter in 2023) said that it would be appropriate to continue to hike rates “at least at the next few meetings” until inflation has peaked and foresees the Federal Funds rate (FFR) at 5.4%. He added that the Fed must avoid cutting the policy rate prematurely and would consider cutting only when it’s convinced inflation is on its way back down to 2%.

Aside from this, the NZD/USD resumed its upward trajectory, though it is seesawing around the 20-day Exponential Moving Average (EMA) at 0.6301. if the NZD/USD achieves a daily close above the latter, further upside is expected. Contrarily, the NZD/USD might retest the 50-day EMA at 0.6209.

What to watch

An absent New Zealand (NZ) economic docket would leave traders adrift to US dynamics. The US economic calendar would feature the US Federal Reserve’s (Fed) last meeting minutes, followed by the Balance of Trade and the Initial Jobless Claims report on Thursday, ahead of the US Nonfarm Payrolls report on Friday.

NZD/USD Key Technical Levels