NZD/USD Starting A Bearish Reversal, After Failing to Hold Gains Above 0.60

Posted Tuesday, September 5, 2023 by
Skerdian Meta • 2 min read

Risk currencies have been feeling heavy as the economic situation in China continues to offer negative surprises. Commodity dollars were bearish for most of August, with NZD/USD falling more than 500 pips, from above 0.64 to below 0.59, as the USD surged higher on stronger economic figures, although in the last two weeks, we have seen some weakness in the US economy as well.

There are ongoing concerns about disinflation as both inflation expectations and recent Core Consumer Price Index (CPI) month-over-month figures have been below expectations, with the last two Core CPI readings coming in at 0.16%. Additionally, the Purchasing Managers’ Index (PMI) data for various sectors missed expectations in the past week.

In the first half of the week, reports on US Job Openings and Consumer Confidence fell significantly short of expectations. This was followed by a miss in the US Automatic Data Processing (ADP) employment data, although US Jobless Claims exceeded expectations. The US unemployment rate also saw a notable increase, rising by 3 percentage points to 3.8%, and earnings failed to meet expectations. However, the Non-Farm Payrolls (NFP) report surpassed expectations.

As a result of this mixed economic data, the market no longer anticipates another interest rate hike from the Federal Reserve (Fed). However, future FED actions will depend on incoming data and economic indicators. As a result, this pair retraced higher, climbing above 0.60, piercing the 20 daily SMA (gray) as well. But, it couldn’t hold on above that big round level.

Turning to New Zealand, the Reserve Bank of New Zealand (RBNZ) has decided to maintain its official cash rate at the current level, which is considered restrictive, in order to bring inflation back to its target range. Recent New Zealand inflation and employment data surprised on the upside, but PMI data for the country’s services sector has shown contraction, with a significant decline last week.

Wage growth in New Zealand has also fallen short of expectations, which is a concern for central banks as it may have second-round effects on inflation. Despite some positive signs, New Zealand Retail Sales, while beating expectations, remain in negative territory. The RBNZ is expected to keep the cash rate unchanged in the upcoming meeting.