NZD/USD slides back to 200DMA at 0.7100 level as FX market focus shifts to NFP

• NZD/USD is back to testing weekly lows in the 0.7100 region, having given back its post-Fed gains.
• The US dollar is seemingly getting a boost from strong US data ahead of Friday’s key jobs report.

NZD/USD has now more than erased Wednesday’s post-Fed rally that saw the currency pair reach as high as 0.7180. The pair is now back to testing its 200-day moving average (DMA) at pretty much bang on the 0.7100 level and is only a few pips above weekly lows and the 21DMA around 0.7090. FX market conditions may be set to enter a period of relative calm with the latest flurry of central banks now in the rearview mirror (the BoE and Norges Bank both issued policy decisions on Thursday following on from the Fed on Wednesday and RBA on Tuesday) ahead of the release of Friday’s key US labour market report.

That suggests that NZD/USD may struggle to push much lower than current levels; traders may instead wait to see whether the US labour market had as good a month as alternative labour market indicators for October suggest was the case; for reference, initial jobless claims fell throughout October, US payroll processing company ADP’s estimate of national employment change beat expectations in October by a healthy margin (coming in at 571K versus forecasts for 400K) and the ISM Manufacturing and Services PMI employment subindices both point to a continuation of job growth last month. If Friday’s headline payroll number is strong, this could be the impetus that the bears need to push NZD/USD lower, with the 50DMA at 0.7060 the next obvious target. Markets will also be focused on the US unemployment rate, the participation rate and the rate wage growth.

On the topic of jobs data, the New Zealand dollar has struggled to benefit in wake of a stellar Q3 New Zealand labour market report earlier in the week, which saw the unemployment rate plummet to 3.4%, its lowest since 2007 and well below the RBNZ’s estimate of the natural rate of full employment. December 2022 NZ Bank Bill futures, which moved to price in 100bps in additional rate hikes by next December during the month of October (helped by Q3 CPI nearly hitting 5.0%), are little moved this week, despite the strong data. At 97.29, the Bank Bill future implies a further 180bps in rate hikes (approximately) by the end of 2022.