In Friday’s trading session, the NZD/USD witnessed a sharp decline, settling around 0.6060, driven by a robust US Nonfarm Payrolls report. The unexpected strength in the report dashed hopes of imminent rate cuts by the Federal Reserve (Fed), prompting a bearish turn in the pair. For the week, the NZD/USD closed with a 0.40% weekly loss.
The US Bureau of Labor Statistics reported a significant increase in Nonfarm Payrolls for January, reaching 353K, surpassing the consensus of 180K and the previous figure of 333K. Average Hourly Earnings exceeded expectations at 0.6%, with a yearly measure at 4.5%, outpacing the anticipated 4.1%. The Unemployment Rate remained steady at 3.7%, slightly lower than the expected 3.8%.
In response, US bond yields rose across the board, signaling market expectations of a delayed Fed easing cycle, potentially starting in May instead of March. The 2-year rate currently stands at 4.37%, while the 5 and 10-year yields are observed at 4% and 4.05% respectively. Historically, higher yields tend to strengthen the USD’s appeal to foreign investors.
Reflecting this sentiment, the CME FedWatch Tool indicated a significant reduction in the probability of a March interest rate cut, now at 20%, while the likelihood of a cut in the subsequent May meeting rose to nearly 58%.
Examining the NZD/USD on the daily chart, a bearish bias is evident in the short-term. Indicators, such as the negative slope and negative territory in the Relative Strength Index (RSI), signal diminishing buying power. Additionally, the Moving Average Convergence Divergence (MACD) histogram shows rising red bars, indicating overall momentum favoring sellers.
Considering the pair’s position relative to moving averages, it is trading below the 20-day and 200-day Simple Moving Averages (SMAs), reinforcing bearish sentiment. Notably, it remains above the 100-day SMA, suggesting that bulls are maintaining control of the broader outlook. Traders will closely monitor these levels for potential shifts in market dynamics.
