NZD/USD near its one-week high around 0.6100 ahead of the US NFP.

• The NZD/USD pair reaches one-week highs on Friday against a backdrop of USD selling.
• The diminishing odds of another Fed rate hike in June continue to weigh on the dollar.
• A positive risk tone further benefits the risk-sensitive NZD ahead of the US NFP report.

He NZD/USD extends the previous day’s strong recovery from near its lowest level since November 2022 and gets strong continuation traction for the second day in a row on Friday. The pair maintains its buying tone during the European session and is currently trading near a 1-week high, with bulls now waiting for a sustained move above the 0.6100 level before opening new positions.

The US dollar (USD) remains under pressure amid strong expectations that the Federal Reserve (Fed) will skip an interest rate hike at its meeting later this month, which turns out to be a key factor acting as a tailwind for the NZD/USD pair. In fact, the president of the Philadelphia Fed, Patrick Harker, reiterated Thursday that it’s time to at least hit the pause button during a meeting and see how it goes. This follows recent comments from a number of influential FOMC officials, which forced investors to lower their expectations for another 25 basis point hike in June. This caused a further decline in US Treasury yields on Thursday and continues to weigh on the dollar.

Apart of this, the disappointing release on Thursday of the US ISM manufacturing PMI., which contracted for the seventh straight time in May, and a positive risk tone further weaken the safe-haven USD and benefit the risk-sensitive NZD. A private poll showed on Thursday that China’s manufacturing sector unexpectedly posted modest growth in May, which raises hopes for a recovery in the world’s second largest economy. Besides, the approval of a bipartisan law to raise the public debt ceiling of $31.4 trillion and avoiding an unprecedented US default boosts investor confidence. Meanwhile, dollar bulls seem unimpressed by the upbeat US ADP report.

Having said that, the explicit signal from the Reserve Bank of New Zealand (RBNZ) last week that it had ended its most aggressive cycle of increases since 1999 could act as a headwind for the national currency. Traders also seem reluctant to open aggressively bullish positions around the NZD/USD pair, preferring to wait on the sidelines before the US monthly jobs data release later in the American session. The popularly known NFP report will play a key role in influencing USD price dynamics and provide further directional momentum for the pair.

NZD/USD technical levels to watch