NZD/USD Surges to a Two-Week High above 0.6200 as US Dollar Continues to Decline, Focus Shifts to US NFP

The NZD/USD pair has reached a recent high of 0.6215 during the London session, marking a two-week peak. The New Zealand dollar has gained significant strength due to the considerable weakness observed in the US Dollar Index (DXY).

The DXY has experienced a sharp decline, nearing 103.10, as investors adopt a cautious approach ahead of the release of Employment and Services PMI data.

Investors have held back as S&P500 futures indicate a sell-off, anticipating the upcoming second-quarter earnings season. There is uncertainty surrounding corporate earnings due to higher interest rates and stricter credit conditions imposed by commercial banks.

The recently released minutes of the Federal Open Market Committee (FOMC) reveal policymakers’ concerns about the economy facing challenges arising from tighter credit conditions, including higher interest rates, which could potentially impact economic activity, hiring, and inflation. However, the extent of this impact remains uncertain.

Looking ahead, the market will closely monitor the US Nonfarm Payrolls (NFP) data. The Unemployment Rate is projected to decrease to 3.6% compared to the previous release of 3.7%, while the Nonfarm Payrolls (NFP) report for June is expected to show a fresh addition of 225,000 payrolls, down from the previous figure of 339,000. The Monthly Average Hourly Earnings are anticipated to remain steady at 0.3%.

Prior to that, attention will be on the US ISM Services PMI. Unlike manufacturing activities, the US Services PMI indicates expansion, with economic data expected to increase to 51.0 from the previous release of 50.3. However, the New Orders Index is predicted to decline to 53.3, compared to the previous figure of 56.2.

Regarding the New Zealand Dollar, investors express concerns that further interest rate hikes by the Reserve Bank of New Zealand (RBNZ) may negatively impact the economic outlook.

Economists at UOB have noted that New Zealand has entered a technical recession, with a 0.1% quarter-on-quarter contraction in the first quarter of 2023, in contrast to the revised 0.7% fall in the fourth quarter of 2022 (previously -0.6%). This reading falls significantly below the RBNZ’s projection of 0.3% growth.

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