The NZD/USD currency pair has come under pressure during the Asian session on Friday. It has encountered fresh selling, eroding some of the gains made in the previous day. The pair has dropped to a daily low near the 0.5860 region as traders eagerly anticipate the release of the US Nonfarm Payrolls (NFP) report, which is expected to provide significant impetus ahead of the weekend.
The US NFP data is highly significant as it can offer insights into the Federal Reserve’s (Fed) rate cut path. This, in turn, will have a major impact on the US Dollar (USD) price movements and subsequently drive the NZD/USD pair. Currently, the decline in US Treasury bond yields has kept the USD bulls in a defensive position near a multi-week low. However, expectations of a less dovish Fed, combined with a softer tone in global equity markets, are providing some support to the US dollar and weighing on riskier currencies like the New Zealand dollar.
Investors believe that the policies of US President-elect Donald Trump will lead to an increase in inflation and prompt the Fed to halt rate cuts. Additionally, recent hawkish remarks from Fed Chair Jerome Powell and other FOMC members suggest that the US central bank will be more cautious. Persistent geopolitical risks are also dampening investor sentiment. Moreover, bets on aggressive policy easing by the Reserve Bank of New Zealand (RBNZ) are fueling expectations of further weakness in the NZD/USD pair.
From a technical standpoint, the price action over the past three weeks, which has been range-bound, can be regarded as a bearish consolidation phase. The absence of significant buying and the negative oscillators on the daily chart confirm the near-term bearish outlook for the NZD/USD pair. As a result, any attempt at a recovery is likely to be seen as a selling opportunity and may quickly lose momentum.
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