- The NZD/USD showed a strong downward swing, falling near the 0.6060 level.
- US Nonfarm Payrolls added 353K jobs in January surpassing by a wide margin the expectations.
- The bets of a rate cut in March sharply declined and markets pushed the start of the easing to May.
In Friday’s trading session, the NZD/USD took a steep turn downwards, landing at a rough level of 0.6060. The pronounced downward trajectory resulted from a surprisingly strong US Nonfarm Payrolls report that pushed the pair into bearish domain as markets gave up the hopes of sooner rate cuts by the Federal Reserve (Fed). For the week, the pair closed a 0.40% weekly loss.
The US Bureau of Labor Statistics reported that the Nonfarm Payrolls for January presented a robust picture with a significant increase of 353K compared to the consensus figure of 180K and the previous 333K. The Average Hourly Earnings in January increased by 0.6%, outstripping the anticipated 0.3% and the preceding 0.4% respectively while the yearly measure soared to a 4.5%, higher than the prior 4.4% and beating the expected 4.1%. Lastly, the Unemployment Rate for January remained steady at 3.7%, which aligns with its previous figure and was slightly lower than the anticipated 3.8%.
As a reaction, the US bond rose across the board as markets start to prepare for the easing cycle of the Fed to start in May rather than in March. The 2-year rate is currently standing at 4.37%, with the 5 and 10-year yields observed at 4% and 4.05% respectively. As per historical financial trends, a rise in yields generally tends to fortify the USD’s position as it is more appealling for foreign investors.
In line with that, the CME FedWatch Tool showed a significant drop in the likelihood of a March interest rate cut, with estimates now standing at just 20% while the odds of a cut in the following May meeting rose to nearly 58%.
NZD/USD levels to watch
The daily chart suggests that the pair has a bearish bias, at least in the short-term. Indicators signal declining buying power, as depicted by the negative slope and negative territory in the Relative Strength Index (RSI). Adding to that the histogram of the Moving Average Convergence Divergence (MACD) displays rising red bars, hinting that the overall momentum favors the sellers.
Looking at the pair’s position relative to moving averages, it is trading below the 20-day and 200-day Simple Moving Averages (SMAs), another sign of bearish sentiment. Yet, interestingly, it sits above the 100-day SMA, indicating that the bulls are maintaining a bullish grip on the broader outlook.
Surprising NFP Figures Send NZD/USD Plummeting: Will the Downward Pressure Continue
The New Zealand dollar and US dollar currency pair, commonly known as NZD/USD, is a popular choice among forex traders due to its high liquidity and volatility. Recently, this currency pair has been making headlines with a significant plunge in its value, leaving traders wondering about the reasons behind this sudden downward pressure. The answer lies in the surprising NFP figures that were released, sending the NZD/USD plummeting. In this article, we will delve deeper into this unprecedented event, analyze its impact on the forex market, and discuss whether the downward pressure will continue.
Understanding the NFP Figures and Their Impact on the Forex Market
The non-farm payroll (NFP) figures are considered to be one of the most crucial economic indicators for the United States. They are released by the U.S. Bureau of Labor Statistics on the first Friday of every month and provide valuable insights into the country’s employment situation. The NFP figures represent the total number of paid workers, excluding government employees, private household employees, and employees of non-profit organizations. These figures also include the average hourly earnings and the unemployment rate.
The NFP figures are closely watched by forex traders as they have a significant impact on the value of the U.S. dollar and, consequently, the NZD/USD currency pair. A higher-than-expected NFP figure is indicative of a growing economy and is considered bullish for the U.S. dollar, while a lower-than-expected figure is considered bearish. This is because a strong job growth is a sign of a healthy economy, leading to increased consumer spending and inflation, which in turn, leads to a stronger dollar.
The Surprising NFP Figures and Their Effect on the NZD/USD Currency Pair
The NFP figures for the month of May were released on June 4th, and they took the forex market by surprise. The figures showed a significant increase in job growth, with 559,000 new jobs added, surpassing the market expectation of 671,000. This was the second-highest job gain in a month since the pandemic began, indicating a strong recovery in the U.S. job market.
However, despite the positive job growth, the average hourly earnings and the unemployment rate missed the market expectation. The average hourly earnings increased by only 0.5%, lower than the expected 0.5%, and the unemployment rate rose to 5.8%, higher than the expected 5.6%. This discrepancy between the strong job growth and the weaker average hourly earnings and increased unemployment rate caused a selloff in the U.S. dollar, leading to a sharp decline in the value of the NZD/USD currency pair.
The NZD/USD plunged from 0.7300 to 0.7190 within hours of the NFP release, a drop of nearly 150 pips. This sharp decline in the currency pair’s value left many traders wondering if it is a sign of further downward pressure.
Will the Downward Pressure Continue?
The short answer is, it is too early to tell. While the surprising NFP figures did cause a sharp decline in the NZD/USD currency pair, there are several other factors at play that could potentially reverse this trend.
One of the major reasons for the plummeting of the NZD/USD is the shifting market sentiment towards the U.S. dollar. With the U.S. economy showing strong signs of recovery, market participants are increasingly bullish on the dollar, leading to a decline in demand for the NZD. However, this sentiment could change if there is a sudden surge in market volatility or a negative turn in the economic factors in the U.S.
Apart from the U.S. factors, there are also several ongoing events in New Zealand that could potentially impact the kiwi dollar. The Reserve Bank of New Zealand (RBNZ) has hinted at an upcoming interest rate hike, which could strengthen the NZD against the USD. Additionally, the ongoing vaccination drive and the country’s success in handling the pandemic can also impact the performance of the national currency.
Practical Tips for Trading the NZD/USD Currency Pair
In the current market scenario, where the NZD/USD is experiencing high volatility, it is crucial for traders to have a well-defined trading strategy. Here are some practical tips that can help traders navigate the market with more confidence.
– Keep an eye on the upcoming economic releases and their impact on the USD and NZD. This will help traders anticipate potential market movements and adjust their positions accordingly.
– Monitor the U.S. Treasury yields, as they have a direct influence on the strength of the USD. Higher yields usually lead to a stronger dollar and vice versa.
– Keep an eye on any sudden shifts in market sentiment. If there is a sudden shift towards risk aversion, traders can expect the USD to strengthen, leading to a decline in the NZD/USD currency pair.
– Use risk management techniques such as stop-losses and proper position sizing to minimize losses in case of unexpected market movements.
In conclusion, the recent plummeting of the NZD/USD currency pair was primarily driven by the surprising NFP figures, but there are several other factors that could potentially impact its performance in the future. Traders should keep a close watch on the market sentiment and upcoming economic events to make informed trading decisions. As always, it is essential to have a well-defined trading strategy and proper risk management techniques in place to navigate the volatile forex market successfully.
