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NZD / USD Recovers Above 0.7150 Ahead of Key Job Data Release

  • The NZD / USD pair rebounded from a streak of weakness early in the US session and is back above 0.7150.
  • Higher dairy prices have helped the NZD perform well despite the strong US dollar as traders await key employment data.

The NZD / USD experienced a bout of weakness at the time of the opening of US equities, falling below a key support level that had been in play since last Friday at 0.7150. The pair fell as low as 0.7130 but soon recovered these losses and is now trading flat again on the day, just above 0.7150. If the bears regain control, the key support area to watch for on the downside is around the 0.7100 level (the lows of January 18 and 28).

Driving the day

The NZD performed well on Tuesday despite the strength of the US dollar that weighed on the pronounced weakness of the AUD, the dollar antipodal to the kiwi. The Aussie was hit by a more dovish-than-expected RBA rate decision result, and the bank surprised markets with an announcement that its QE program will extend beyond April at a rate of AUD 5B. per month. Perhaps the more moderate-than-expected RBA result highlighted the recent shift in market expectations towards RBNZ policy; Markets are no longer betting that New Zealand’s central bank will ease policy further (this cycle) or push rates into negative territory. This means that, with the RBNZ OCR rate at 0.25%, New Zealand will maintain a 0.15% lead in the central bank interest rate over its antipodean peers.

Elsewhere, Fonterra, New Zealand’s (and world’s) largest dairy exporter, raised the prices it pays farmers for milk amid strong demand for its dairy products in China and Southeast Asia, as well as some firmer global prices for dairy products. The strength of dairy prices was reflected in the latest figures from GlobalDairyTrade (GDT); The GDT price index rose 1.8% weekly and whole milk powder rose 2.3% weekly. Strong dairy prices bodes well for New Zealand, given the economy’s reliance on agricultural exports (and dairy in particular), so the NZD is responding well to developments.

Looking ahead, NZD traders are aware of the release of the Q4 Labor Market Report at 9:45 PM GMT. ANZ believes that while incoming labor market data may be noisy, it will nonetheless provide clarity on the extent of the recent labor market deterioration. “We expect the unemployment rate to rise to 5.6%, with slightly higher risks,” says the bank. Furthermore, the bank comments that “wage growth is expected to remain soft, but the strength in some industries is likely due to skills shortages and the two-speed nature of the economy today.”

Technical Levels

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