NZD/USD flat-lines above mid-0.5900s, eyes US NFP for fresh directional impetus

• NZD/USD lacks any firm direction on Friday and seesaws between tepid gains/minor losses.
• A positive risk tone and the upbeat Chinese PMI lend some support to the risk-sensitive Kiwi.
• The uncertain Fed rate-hike path caps the USD and also contributes to limiting the downside.
• Traders keenly await the release of the crucial US NFP report before placing aggressive bets.

The NZD/USD pair attracts some intraday sellers on Friday, albeit manages to defend the 200-hour Simple Moving Average (SMA) and recover a few pips from the daily low touched in the last hour. Spot price seesaw between tepid gains/minor losses through the early European session and currently hovers around the 0.5965-0.5970 region, nearly unchanged for the day as traders keenly await the closely-watched US monthly jobs data.

The popularly known NFP report will influence market expectations about the next policy move by the Federal Reserve (Fed), which, in turn, will drive the US Dollar (USD) demand and provide a fresh directional impetus to the NZD/USD pair. In the meantime, the uncertainty over the Fed's future rate-hike path fails to assist the USD Index (DXY), which tracks the Greenback against a basket of currencies, to capitalize on its overnight goodish rebound from a two-week low. This, along with a generally positive tone around the equity markets, lends support to the risk-sensitive Kiwi.

The US macro data released earlier this week – the ADP report and the revised Q2 GDP print – suggested that the resilient US economy is starting to lose steam, which might force the Fed to hold interest rates steady. That said, the US Bureau of Economic Analysis reported on Thursday that the annual Core PCE Price Index – the Fed's preferred inflation gauge – edged up to 4.2% in August from the 4.1% recorded in the previous month. This keeps the door for one more 25 bps lift-off by the end of this year wide open and acts as a tailwind for the buck ahead of the key data risk.

The downside for the NZD/USD pair, however, seems cushioned in the wake of the optimism over more stimulus measures and the upbeat data from China. In fact, the People's Bank of China (PBoC) announced today that it will lower the foreign exchange reserve requirement ratio to 4%, from 6.0%, effective from September 15. Furthermore, a slew of Chinese banks cut rates on Yuan deposits as they prepare to lower interest rates on existing mortgages soon. Adding to this, a Caixin-sponsored survey showed that manufacturing activity in China expanded at its fastest pace since February.

The aforementioned mixed fundamental backdrop warrants some caution before positioning for a firm near-term direction for the NZD/USD pair. Meanwhile, this week's rejection near the 0.6000 psychological mark and the lack of any meaningful buying interest suggests that the well-established downtrend from a multi-month high touched in July is still far from being over. That said, the recent failures to find acceptance below the 0.5900 round figure make it prudent to wait for strong follow-through selling to confirm the near-term negative outlook.

Technical levels to watch