04.08.202111:22 Forex Analysis & Reviews: NZD/USD. New Zealand NonFarm Payrolls increased hawkish expectations

During the Asian session on Wednesday, the New Zealand dollar paired with the US currency updated a 4-week high, reacting to the release of key data on the growth of the labor market in the country. Today's release reinforced the "hawkish" expectations regarding the further actions of the Reserve Bank of New Zealand. Traders are looking forward to the August meeting of the RBNZ, which will be held exactly two weeks later – on August 18. Judging by previous statements and macroeconomic reports, the New Zealand regulator may announce a tightening of monetary policy parameters at this meeting. Some experts admit another scenario, according to which the Central Bank will raise the interest rate in August. Such rosy prospects push the NZD/USD pair up to new price heights.

Exchange Rates 04.08.2021 analysis

Today, the RBNZ is the only Central Bank among the central banks of the leading countries of the world that takes an unambiguously hawkish position. According to many analysts, the New Zealand regulator will become a kind of "pioneer", which will be the first to raise the key interest rate after the coronavirus crisis. At the July meeting, the New Zealand Central Bank announced the termination of the incentive program for buying bonds in the amount of 100 billion New Zealand dollars. This news clearly caught the majority of market participants by surprise, who were inclined to a "walk-through" meeting. The program was supposed to be valid until the summer of next year, but the members of the Central Bank came to the conclusion that the national economy no longer needs additional incentives. Following the results of the RBNZ meeting in July, the NZD/USD pair jumped to the level of 0.7102, but failed to gain a foothold within the 71st figure. Against the background of the general strengthening of the US currency, the New Zealand dollar retreated from its gained positions and traded in a 100-point range for several weeks, the scope of which was limited to 0.68-0.69. Today's release strengthened the position of the New Zealand dollar, as the market again started talking about the fact that the RBNZ will take the first step to tighten monetary policy at the August meeting.

According to published data, the unemployment rate in New Zealand in the second quarter fell to 4 percent, with a forecast decline to 4.4%. The indicator has consistently declined over the past three quarters (for comparison, we can say that in the third quarter, unemployment was at the level of 5.3%). The indicator of the increase in the number of employed also came out in the "green zone" - with a forecast of growth to 0.7%, the indicator came out at 1 percent (in quarterly terms). In annual terms, there is a similar dynamics (+1.7% with a growth forecast of up to 1.2%). We were also pleased with salaries: on a quarterly basis, the average level of wages in the private sector increased by 1.1% (with a growth forecast of up to 0.4%).

In other words, almost all the components of today's release came out in the "green zone", reflecting the recovery of the New Zealand economy. As for the inflation indicators, there is also a positive trend here. The latest data on the growth of inflation in New Zealand supported the country's currency. In the second quarter of this year, the consumer price index rose to 1.3% (from the previous value of 0.8%), on an annualized basis - to 3.3% (with the forecast of growth to 2.8%).

All this suggests that the Reserve Bank of New Zealand may raise the rate as early as August or at one of the autumn meetings. By the way, last week, the RBNZ proposed to tighten mortgage lending standards in order to reduce the share of the most risky new loans for the purchase of housing to 10% from the current level of 20%. The new rules may come into effect from the beginning of October. This indicates the hawkish attitude of the New Zealand regulator.

Exchange Rates 04.08.2021 analysis

Exchange Rates 04.08.2021 analysis

We should also mention the influence of the "coronavirus factor". Thanks to effective anti-epidemic control measures, the country has actually defeated the pandemic – 2-3 cases of infection are registered daily in the 5-million state. In the vast majority of cases, we are talking about those citizens who arrived from abroad and were quarantined. This state of affairs allowed the New Zealand government to relax quarantine restrictions within the country as much as possible, thereby restarting the economy.

Thus, the fundamental background is in favor of the New Zealand dollar. After the release of the "New Zealand NonFarm Payrolls", the NZD/USD pair jumped to the level of 0.7060, which corresponds to the lower border of the Kumo cloud on the daily chart. However, the buyers of the pair failed to overcome this resistance level on impulse. Therefore, it is advisable to open longs only when fixing in the area of the 70th figure. Despite the strong positions of the New Zealand dollar, the pair meets a fairly strong "counter current", as American NonFarm Payrolls are ahead (the release is scheduled for Friday), the results of which can strengthen the US dollar throughout the market.

*The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.

Irina Manzenko,
Analytical expert of InstaForex
© 2007-2021
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