AUD/NZD grinds near mid-1.0600s as Australia employment, New Zealand budget loom

• AUD/NZD picks up bids to snap two-day downtrend but remains indecisive ahead of the key data/events.
• Upbeat sentiment, softer New Zealand data allow bears to take a breather.
• Strong Aussie jobs report necessary to justify RBA’s hawkish surprise, New Zealand’s “no frill” budget needs validation from rating agencies.

AUD/NZD renews its intraday high near 1.0670 as it prints the first daily gains in three ahead of the all-important Australian employment report and New Zealand’s annual budget, scheduled for publishing on Thursday.

The exotic pair’s latest rebound from a 1.5-month-old ascending support line could be linked to the market’s cautious optimism, as well as downbeat New Zealand (NZ) inflation clues.

That said, New Zealand’s first quarter (Q1) Producer Price Index Input and Output numbers ease to 0.2% and 0.3% respectively versus 0.5% and 0.9% priors in that order. It’s worth noting that these figures are way below the market forecasts of 1.5% and 1.3% for Input and Output respectively.

Adding to the pair’s recovery moves could be the latest hopes of the US policymakers’ ability to avoid the ‘catastrophic’ default. Although markets doubt a brief meeting between US President Joe Biden and House Speaker Kevin McCarthy, comments from both key diplomats propel hopes of no US debt ceiling expiry.

On Wednesday, US House Speaker Kevin McCarthy said in an interview on CNBC, "Now we have an opportunity to find common ground but only a few days to get the job done." Further, US President Joe Biden said that he is confident that they will be able to reach a budget agreement and noted that it would be catastrophic if the US failed to pay bills, per Reuters. "Will have a news conference on Sunday on the debt issue,” added US President Joe Biden.

In addition to the US-inspired run-up, hopes of more investment from China also underpinned the AUD/NZD recovery as China’s State Planner National Development and Reform Commission of the People's Republic of China (NDRC) mentioned on Wednesday that it'll take measures to unleash consumption potential and to make continuous efforts in stabilizing and expanding manufacturing investment.

To portray the risk-on scenario, Wall Street closed with gains while Treasury bond yields remain firmer at a two-week high.

Moving on, AUD/NZD pair traders should close attention to today’s Australia Employment data for April as the headline Employment Change is expected to ease to 25K, versus 53K prior, whereas the Unemployment Rate and Participation Rate may stay unchanged at 3.5% and 66.7% respectively. Should the data match downbeat forecasts, or show a further easing of the jobs market, the RBA will have a tough time justifying the latest hawkish surprise, which in turn can weigh on the pair prices.

Additionally, New Zealand’s “no frill” budget needs acceptance from the rating agencies and bond markets to favor the New Zealand Dollar (NZD) buyers. With this in mind, ANZ said, “Despite the ‘no frills’ label being attached to Budget 2023 ahead of its release, we expect it to add a little more stimulus to an already capacity-constrained economy.”

Technical analysis

AUD/NZD pair’s recovery from a six-week-old ascending support line, close to 1.0640 at the latest, remains elusive unless crossing a convergence of the 50-DMA and 21-DMA, near 1.0735 by the press time. That said, easing the bearish bias of the MACD and steady RSI favors the pair’s latest corrective bounce.