The NZD/USD pair has been trading above the 0.6100 level for the past two days, as the US dollar weakened after a mixed US jobs report and the market awaited the upcoming Reserve Bank of New Zealand (RBNZ) meeting.
The US Nonfarm Payrolls report for November showed that the economy added 210,000 jobs, missing the market consensus of 550,000. The unemployment rate, however, dropped to 4.2% from 4.6%, beating the expectations of 4.5%. The average hourly earnings rose by 0.3% month-over-month and 4.8% year-over-year, in line with the forecasts.
The data suggested that the US labor market recovery was slowing down, easing the pressure on the Federal Reserve to tighten its monetary policy sooner than expected. The US dollar index (DXY), which measures the greenback’s strength against a basket of six major currencies, fell to a one-week low of 95.85 on Friday.
The market will now turn its attention to the US Consumer Price Index (CPI) data, which will be released on Wednesday. The CPI is expected to show that the inflation rate remained elevated at 6.2% year-over-year in November, the highest level since 1990. The core CPI, which excludes food and energy prices, is forecast to rise by 4.9% year-over-year, the highest level since 1991.
The CPI data will be closely watched by the Fed and the market participants, as it could influence the Fed’s decision on tapering its asset purchases and raising its interest rates. The Fed will hold its next monetary policy meeting on December 15-16, where it is widely expected to announce a faster pace of tapering and signal the possibility of rate hikes next year.
RBNZ meeting eyed, NZD/USD outlook
The RBNZ will also have its monetary policy meeting on Wednesday, where it is expected to raise its official cash rate (OCR) by 25 basis points to 0.75%. The RBNZ surprised the market in November by keeping the OCR unchanged at 0.5%, citing the uncertainty caused by the COVID-19 delta variant and the lockdown measures in New Zealand.
However, since then, the economic data from New Zealand has been mostly positive, showing that the economy was resilient to the pandemic shocks. The business confidence, the manufacturing activity, the retail sales, and the trade balance all improved in October and November, while the inflation rate rose to 4.9% year-over-year in the third quarter, the highest level since 2011.
The market is pricing in a high probability of a rate hike by the RBNZ, as well as further tightening in the next year. The NZD/USD pair has been supported by the hawkish expectations, as well as the stronger Chinese data, which boosted the demand for the China-proxy New Zealand dollar. China is New Zealand’s largest trading partner, and its economic performance has a significant impact on the NZD.
The NZD/USD pair is currently trading around 0.6140, up 0.12% on the day. The pair faces a strong resistance at 0.6160, which is the 50-day simple moving average (SMA). A break above this level could open the door for further gains towards 0.6200 and 0.6240, which are the 100-day and 200-day SMA, respectively. On the downside, the pair has a support at 0.6100, which is a psychological level. A break below this level could trigger a decline towards 0.6060 and 0.6020, which are the recent lows.