Forex Market: NZD/USD advances to fresh one-week highs as investor risk appetite heightens

NZD/USD extended gains from the prior two trading days and hit highs unseen in a bit over a week on Thursday, as the kiwi dollar appreciated on heightened investor risk appetite following promising macro data, while hopes for a coronavirus vaccine also supported sentiment.

Yesterday the Institute for Supply Management said US manufacturing activity had rebounded sharply in June, with the PMI pointing to the strongest expansion since April 2019, while a report by ADP showed US private sector companies had hired 2.369 million workers in June, following a revised up jobs gain of 3.065 million in May.

US data echoed similar survey results in China and the Euro Area, where manufacturing sector conditions also improved in June.

As of 11:37 GMT on Thursday NZD/USD was gaining 0.78% to trade at 0.6528, after earlier touching an intraday high of 0.6529, or a level not seen since June 23rd (0.6533). The major pair has erased earlier losses and is now up 1.65% for the current week, following another 0.25% gain in the preceding week.

Today’s market focus will be on the more comprehensive non-farm payrolls report at 12:30 GMT, which reflects employment in US public and private sectors. Employers in all segments of US economy, excluding the farming industry, probably added 3,000,000 new jobs in June, according to market expectations, after a job gain of 2,509,000 in May. The latter has been the largest monthly job growth rate on record.

“Any reasonable reaction to this number must also price in the resurgence in cases,” Vishnu Varathan, head of economics at Mizuho Bank in Singapore, said. Given concerns over surging new coronavirus infections and the re-imposition of restrictions on business and personal activity in some US states, the NFP numbers must be significantly better than expected in order to bolster risk sentiment, according to Varathan.

“A shortfall, particularly even one that may be mildly negative, would quickly reinforce the shadows of doubt being cast on plans for unfettered re-openings,” Mizuho Bank’s Varathan added.

Meanwhile, the rate of unemployment in the country probably decreased to 12.3% in June, according to a consensus of estimates, from 13.3% in May.

“A renewed significant fall in the unemployment rate would make the market feel confident about a recovery,” Thu Lan Nguyen, FX strategist at Commerzbank in Frankfurt, said.

“In that case we would see risk-on, which should theoretically be negative for the U.S. currency since the U.S. dollar has been in demand as a safe haven during the crisis,” Nguyen added.

The US Dollar remained broadly weaker against major peers on Thursday, with DXY retreating 0.24% to 96.96.

A separate report by the Bureau of Economic Analysis at 12:30 GMT may show US trade deficit widened to $53 billion in May from $49.4 billion in April. The latter has been the largest trade gap since August 2019, in part due to the impact of the pandemic, with many businesses being forced to operate at limited capacity or to cease operations entirely.

Also at 12:30 GMT, the US Labor Department will release its weekly report on jobless claims. The number of people in the country, who filed for unemployment assistance for the first time during the business week ended June 26th, probably eased to 1,355,000, according to expectations, from 1,480,000 in the preceding week. The latter exceeded the peak observed during the 2007-2009 financial crisis more than twice.

Bond Yield Spread

The spread between 1-year New Zealand and 1-year US bond yields, which reflects the flow of funds in a short term, equaled 9.9 basis points (0.099%) as of 10:15 GMT on Thursday, up from 8.1 basis points on July 1st.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6469
R1 – 0.6498
R2 – 0.6518
R3 – 0.6547
R4 – 0.6576

S1 – 0.6449
S2 – 0.6420
S3 – 0.6399
S4 – 0.6379