06 Dec 2024

• NZD/USD meets with a fresh supply amid a slight deterioration in the global risk sentiment.
• The USD languishes near a multi-week low, though it does little to lend any support to the pair.
• Traders look to the US NFP report for cues about the Fed’s rate-cut path and a fresh impetus.
• The NZD/USD pair is experiencing renewed selling pressure during the Asian trading session on Friday, resulting in a partial reversal of the modest gains achieved the previous day. In the last hour, spot prices have fallen to a daily low near the 0.5860 level, as traders eagerly anticipate the upcoming release of the US Nonfarm Payrolls (NFP) report, which is expected to provide significant direction as the weekend approaches.
  
  This highly scrutinized monthly employment data from the US may offer insights into the Federal Reserve's (Fed) potential trajectory regarding interest rate cuts, which will significantly impact the dynamics of the US Dollar (USD) and, consequently, the NZD/USD pair. Meanwhile, the recent drop in US Treasury bond yields has left USD bulls cautious, as they hover near a multi-week low. Nevertheless, expectations for a less dovish stance from the Fed, coupled with a weaker sentiment in global equity markets, are supporting the USD and exerting pressure on riskier currencies, including the New Zealand Dollar.
• Investors are showing a growing sense of optimism regarding the economic policies anticipated from US President-elect Donald Trump, particularly in relation to inflation. This optimism is based on the belief that Trump's administration will implement measures that could stimulate economic growth, potentially leading to an increase in inflation rates. As a result, market participants are speculating that the Federal Reserve may decide to pause its current trend of rate cuts, which have been aimed at supporting the economy in a low-inflation environment.
  
  In addition to this, recent statements from key figures within the Federal Open Market Committee (FOMC), including Fed Chair Jerome Powell, suggest a shift towards a more cautious stance from the US central bank. These assertive comments indicate that the Fed is closely monitoring economic indicators and may be less inclined to pursue aggressive monetary easing in the near future. This cautious approach, combined with the prevailing geopolitical uncertainties—such as trade tensions, political instability, and global economic challenges—has contributed to a decline in investor sentiment. As a result, market participants are becoming more wary, which could lead to increased volatility in financial markets.
  
  Moreover, the expectations surrounding the Reserve Bank of New Zealand (RBNZ) are also influencing market dynamics. Analysts anticipate that the RBNZ may implement significant policy easing measures in response to domestic economic conditions. This expectation is likely to exert downward pressure on the New Zealand dollar (NZD), particularly against the US dollar (USD), leading to a further depreciation of the NZD/USD currency pair.
  
  From a technical analysis perspective, the price movements of the NZD/USD pair over the past three weeks can be characterized as a bearish consolidation phase. This phase is marked by a lack of substantial buying interest, which suggests that traders are not confident in the currency's ability to recover in the short term. Additionally, negative indicators on the daily chart, such as declining momentum and resistance levels, reinforce the bearish outlook for the NZD/USD pair. Consequently, any attempts at a price recovery may be viewed by traders as opportunities to sell, rather than as signals of a trend reversal. This sentiment indicates that any upward movements in the currency pair are likely to be short-lived and could quickly dissipate, further solidifying the bearish trend.