NZD/USD sticks to NZ jobs data-led gains, lacks follow-through ahead of FOMC

• NZD/USD edged higher on Wednesday in reaction to upbeat New Zealand jobs data.
• A subdued USD demand remained supportive, though the uptick lacked follow-through.
• Investors turned cautious and seemed reluctant ahead of the critical FOMC decision.

The NZD/USD pair maintained its bid tone through the early European session and was last seen hovering near daily tops, around the 0.7125-30 region.

Having shown some resilience below the 0.7100 mark, the NZD/USD pair staged a modest rebound from the very important 200-day SMA and recovered a part of the overnight slump to two-week lows. The move-up followed the release of better-than-expected employment data from New Zealand and was further supported by a subdued US dollar price action.

According to the official data released earlier this Wednesday, total employment rose from 0.4% to 2.0% during the third quarter of 2021. Adding to this, New Zealand's unemployment rate fell from 4.0% to 3.4% or a record low set in Q4 2007. The data pointed to the underlying strength in the economy and bolster the case for another rate hike by the RBNZ.

On the other hand, the USD struggled to capitalize on the previous day's positive move and was seen consolidating in a range ahead of the critical FOMC monetary policy decision. The Fed is widely expected to begin tapering its $120 billion-a-month asset purchase program, though investors will look for clues about the likely timing of the policy tightening.

The markets seem convinced that the Fed would be forced to adopt a more aggressive policy response to contain stubbornly high inflationary pressures. Hence, the focus will remain glued to the accompanying monetary policy statement and Fed Chair Jerome Powell's comments at the post-meeting press conference, which will influence the near-term USD price dynamics.

Heading into the key central bank event risk, investors might refrain from placing aggressive bets. This, in turn, might keep a lid on any further gains for the NZD/USD pair. In the meantime, traders might take cues from the US economic docket, featuring the releases of the ADP report on private-sector employment and ISM Services PMI.

Technical levels to watch