NZD/USD – Kiwi Posts Strong Gains After Fed, US Job Data Shines

The New Zealand dollar has posted strong gains on Thursday. In the North American session, NZD/USD is trading just above the 0.72 line. On the release front, US employment data impressed, as ADP Nonfarm Employment Change and Unemployment Claims both beat expectations. There are no New Zealand events on the schedule. On Friday, we’ll get a look at the all-important Nonfarm Employment Change, with the markets expecting a strong turnaround after the May shocker of just 38 thousand. The estimate stands at 174 thousand.

There was positive news from the US labor market on Thursday. ADP Nonfarm Employment Change was almost unchanged in June, with a reading of 172 thousand. This figure was well above the forecast of 158 thousand. This was followed by a solid unemployment claims release, as the indicator dropped to 254 thousand, marking an 11-week low. All eyes are now on the official Nonfarm Payrolls report which will be released on Friday. A strong release would confirm that the labor market is improving and job creation is gaining steam.

The Federal Reserve released the minutes of its June policy meeting on Wednesday. Policymakers expressed concerns about a slowdown and hiring and the health of the US economy, and the underlying tone was one of prudence and caution. The June meeting took place just one week before Britain voted to leave the EU, which has caused turmoil in the markets and sent bond yields to record lows. The minutes indicated that Fed members projected two rate increases before the end of the year, but that forecast is likely out-of-date following the shock waves from Brexit. Given the current economic climate, the markets are pessimistic about any rates moves before 2017. Investors have priced in no chance of a rate increase at the next Fed meeting on July 26-27, and just an eight percent chance of a hike in 2016. However, if US employment and inflation numbers improve in the second half of the year, the likelihood of a rate hike will certainly increase.

Fed Chair Janet Yellen and her colleagues continue to sound cautious about the US economy, and the financial instability caused by Brexit could delay any rate hikes until 2017. The US economy is in good shape, but the Fed hasn’t raised rates since last December and is unlikely to seriously consider any rate hikes unless employment and inflation numbers point upwards. Although Yellen recently said that Brexit would have an impact on the US, San Francisco Federal Reserve President John Williams seemed to disagree with that assessment. On Tuesday, Williams said that the US markets had reacted to Brexit as expected, and the impact on the US economy would be much smaller than the euro crisis of 2011-2012. Is Brexit having an impact on the Fed’s monetary stance? We may get an answer to that question when the Fed meets again for a policy meeting on July 26-27.

International dairy prices remain depressed, and the New Zealand Global Dairy Trade Auction had another bad outing on Tuesday, posting a decline of 0.4 percent. This follows a flat reading of 0.0 percent in the previous release. At the same time, the New Zealand economy is showing positive signs. The business sector is brimming with confidence according to the latest indicators. The NZIER Business Confidence report surged to 19 points in the second quarter, compared to just 2 points in the first quarter. This comes on the heels of the monthly ANZ Business Confidence report, which jumped to 20.2 points in June, its best showing in five months. The construction sector is booming due to the hot housing market and the services sector is strong. There was more positive news as Commodity Prices indicator climbed 3.7%, its strongest gain since October 2015.  A tightening labor market could boost inflation, which would lessen pressure on the central bank to cut interest rates.

NZD/USD Fundamentals

Thursday (July 7)

• 7:30 US Challenger Job Cuts. Actual -14.1%
• 8:15 US ADP Nonfarm Employment Change. Estimate 158K. Actual 172K
• 8:30 US Unemployment Claims. Estimate 269K. Actual 254K
• 10:30 US Natural Gas Storage. Estimate 42B
• 11:00 US Crude Oil Inventories. Estimate -2.1M

Upcoming Key Events

Friday (July 8)

• 8:30 US Average Hourly Earnings. Estimate 0.2%
• 8:30 US Nonfarm Employment Change. Estimate 174K
• 8:30 US Unemployment Rate. Estimate 4.8%

*Key releases are highlighted in bold

*All release times are EDT

NZD/USD for Thursday, July 7, 2016

NZD/USD July 7 at 9:25 EDT

Open: 0.7130 Low: 0.7114 High: 0.7230 Close: 0.7216

NZD/USD Technical

• NZD/USD posted small gains in the Asian session and continued with strong gains in European trade. The pair is steady in the North American session
• 0.7100 has switched to a support role following gains by NZD/USD. It is a strong line.
• 0.7231 is under pressure in resistance. It could break during the North American session
• Current range: 0.7100 to 0.7231

Further levels in both directions:

• Below: 0.7100, 0.7011, 0.6897 and 0.6793
• Above: 0.7231, 0.7319 and 0.7454

OANDA’s Open Positions Ratio

NZD/USD ratio is showing gains in long positions on Thursday. Long positions command a strong majority (63%), indicative of trader bias towards NZD/USD continuing to moving higher.

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.