NZD/USD struggles to surpass 0.6530, upside remains favored ahead of US NFP

• NZD/USD is showing signs of exhaustion in the upside momentum, however, the upside bias is intact.
• The USD Index has refreshed its nine-month low at 100.51 amid a cheerful market mood.
• Higher job openings and lower employment numbers (Jan) in the US economy indicate that labor demand is exceeding supply.

The NZD/USD pair is facing fragile hurdles in overstepping the seven-month high at 0.6529 in the Tokyo session. The upside bias in the Kiwi asset is intact as the Federal Reserve (Fed) has slowed down the pace of policy tightening further after sensing the fact that the disinflationary process has started in the United States.

S&500 futures have added more gains after an upbeat Wednesday session, portraying a cheerful market mood. Meanwhile, the improved risk appetite of the market participants has triggered volatility for the US Dollar Index (DXY). The USD Index has refreshed its nine-month low at 100.51, at the time of writing, and is expected to remain on tenterhooks.

Although Fed chair Jerome Powell in his commentary has confirmed that more rate hikes are in place till the monetary policy gets sufficiently restrictive, the room for more policy tightening is extremely low. Consumer spending has slowed down and manufacturing activities have contracted for three consecutive months, which indicates that further interest rate hiking could spoil firms’ morale and push the economy into recession.

On the US labor market front, Job openings accelerated to 11.012M vs. the consensus of 10.25M and the former release of 10.44M. While US Automatic Data Processing (ADP) Employment data landed at 106K significantly lower than the estimates of 178K and the former release of 253K. The combination of higher job openings and lower employment numbers indicates that labor demand is exceeding supply, in times of higher inflation, which seems a good thing for the United States economy.

For further guidance on US employment, the release of the US Nonfarm Payrolls (NFP) data will be of utmost importance.

On the New Zealand front, unimpressive Employment data released on Wednesday might delight the Reserve Bank of New Zealand (RBNZ). Analysts at Westpac believe “While the jobs market is coming from a very strong starting point, there is good reason to expect deterioration in the years ahead. In contrast, wage inflation remains on the rise, and the turning point is likely to come later.”

For interest-rate guidance, Westpac sees a further hike in the Official Cash Rate (OCR) by 50 basis points (bps) in its February meeting.