New Zealand dollar flies after US NFP

The New Zealand dollar is steady today, after ending the week with huge gains. NZD/USD is trading at 0.5934 in the North American session.

US dollar slides after NFP

The US dollar was broadly lower on Friday, after the nonfarm payroll report sent mixed signals about the strength of the labor market. The October reading of 261,000 was stronger than the consensus of 200,000, but it marked the smallest gain since December 2020. The unemployment rate rose to 3.7%, up from 3.5%, while wage growth rose to 5.5% YoY, up from 5.2%. The latter release is likely to keep the Fed concerned about inflationary pressures.

The mixed numbers left investors in a dovish mood and the US dollar paid the price. NZD/USD climbed a remarkable 2.7%, as investors gave a strong thumbs-up to risk currencies like the New Zealand dollar. The job data has led to the markets raising the likelihood of a 50 basis points hike in December – the CME’s Fed Watch has pegged a 50 bp increase at 56% and a 75 bp move at 34%. Still, with the Federal Reserve expected to raise rates to 5% or even higher next year, I would not be surprised to see the US dollar quickly recover from Friday’s tumble. Investors were looking for anything to send the equity markets higher, and the mixed NFP report was their excuse, even though US job creation was stronger than expected.

New Zealand will release Inflation Expectations on Tuesday. The Reserve Bank of New Zealand will be watching carefully, as it continues its titanic battle with inflation. Last week’s employment numbers indicated that the labour market remains tight – unemployment is very low and wage growth is moving higher. This makes the RBNZ’s battle with inflation will continue and we can expect another oversized rate hike at the November 23^rd meeting – perhaps as high as 75 bp. The risk of a wage-price spiral is a key concern for policy makers, and if the upcoming Inflation Expectations accelerates, it would be a worrisome signal that inflation is still on the upswing.

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NZD/USD Technical

• There is resistance at 0.5906 and 0.5999
• There is support at 0.5782 and 0.5689

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