NZD/USD aims to extend recovery above 0.6250 amid risk-on impulse, US NFP hogs limelight

• NZD/USD is looking to stretch its recovery above 0.6250 backed by a rebound in the risk-on mood.
• The US Dollar Index is struggling below 104.80 ahead of the US NFP data release.
• Upbeat US ADP Employment Change data has resulted in more troubles for the Fed policymakers.

 The NZD/USD pair is struggling to extend its recovery above the immediate resistance of 0.6250 in the Asian session. The Kiwi asset rebounded firmly to near 0.6220 as investors shrugged off the United States' upbeat employment-inspired volatility.  On Thursday risk-sensitive currencies witnessed extreme selling pressure after the US Automatic Data Processing (ADP) Employment Change reported the stronger-than-projected addition of fresh payrolls in December.

The US Dollar Index (DXY) is hovering in an extremely narrow range below the immediate resistance of 104.80 as investors await US Nonfarm Payrolls (NFP) data release for fresh impetus. Meanwhile, the S&P500 futures have rebounded significantly, portraying a recovery in the risk-on impulse. The 10-year US Treasury Yields are displaying a subdued performance and are hovering below 3.72%.

The release of the upbeat US ADP Employment data proved that the tight labor market is going to be the major hurdle for the Federal Reserve (Fed) in its way toward achieving price stability. There is no denying the fact that firms must be offering higher wages to attract talent amid solid labor demand. So, any further rebound in the US Consumer Price Index (CPI) may stem from higher wage inflation.

In the meantime, analysts at TD Securities have come forward with expectations for interest rate hikes for CY2023.

Commenting on the minutes of the Federal Reserve's December policy meeting, TD Securities analysts noted that officials remained in broad agreement about the need to push the policy stance further into restrictive territory in the near term. Therefore it expects another 50 basis points (bps) rate increase in February, and expects 25 bps rate hikes in March and May. It projects that the Fed will therefore settle on a terminal Fed funds target rate range of 5.25%-5.50% by May."

Meanwhile rising cases of Covid-19 in China will continue to impact the New Zealand Dollar. Economic activities in China are continuously scaling down as firms have still not resumed operations on a full-fledged note. It is worth noting that New Zealand is one of the leading trading partner of China and a decline in the volume of economic activities in the Sino region impact the New Zealand Dollar.