NZD/USD breaks above 0.6050 on US dollar weakness

• The kiwi gained over 80 points in the Thursday session and hit a daily high of 0.6075.
• Weak US ISM data for May and the downward revision of unit labor costs weakened the dollar.
• The dovish comments from the Fed also appear to be putting pressure on the dollar.

The pair NZD/USD posted its biggest daily gains since mid-May. In this sense, the combination of the weak ISM data, the downward revision of the Unit Labor Costs and the dovish comments of the Fed’s Patrick Harker contributed to the selling pressure on the dollar. On the other hand, as New Zealand’s economic calendar remains empty, the kiwi also benefits from the positive market environment buoyed by the passage of the US Debt Ceiling Bill by the US House of Representatives. .USA.

US economic data fueled dovish Fed bets ahead of NFP data

The US Bureau of Statistics reported that unit labor costs rose 4.2% in the first quarter, revising the initial estimate of 6.3% downward. Elsewhere, the Institute for Supply Management (ISM) reported that the May manufacturing PMI came in at 46.9, slightly below the 47 forecast and down from 47.1 the previous month. As this report can serve as an indicator of trends in production costs, share prices and inflation, it points to a possible slowdown in inflationary pressures in May.

As a result, with US economic activity showing signs of weakness ahead of the upcoming FOMC meeting on June 13-14, markets are now pricing in greater chances of a pause. In reaction, US bond yields are falling. The 10-year bond yield fell to 3.61% and registered a fall of 1.03%, while the 2-year and 5-year rates also experienced decreases of more than 1%, standing at 4.33% and 3.70% respectively, which which put further pressure on the US dollar. In addition, the Fed’s Patrick Harker commented that “I think we should at least skip the June rate hike” and that if inflation slows noticeably then the Fed can start cutting rates.

For Friday’s session, investors expect the May Non-Farm Payrolls (NFP) to show a slowdown in US private sector job creation, falling to 190,000 from the previous reading of 253,000. Hourly earnings are expected to remain stuck at 0.4%, while the unemployment rate will rise slightly to 3.5%.

Levels to watch

Despite the daily gains, the NZD/USD pair maintains a short-term bearish outlook, according to the daily chart. The Relative Strength Index (RSI) and Moving Average Divergence (MACD) are in negative territory, while the pair remains below its main Simple Moving Averages (SMAs).

If the kiwi resumes the bearish path, immediate support levels are at the 0.60 zone, followed by the 0.5995 zone and the 0.5990 zone. Also, resistance lines up at the 0.6070 zone, followed by the 0.6090 zone and the 0.6100 psychological signal.