The NZD/USD currency pair fell to its lowest level since April on Friday as the US dollar (USD) received fresh bids following solid US non-farm payrolls (NFP) data. At the time of writing, the pair is trading around 0.5800 and heading for a weekly loss of almost 3%.
In May, the American economy created 172,000 jobs. jobs, significantly above market expectations of 85,000. April employment data was revised upwards to 179,000. from 115,000, while the unemployment rate remained stable at 4.3%.
The US dollar rose to a two-month high following the data as better-than-expected labor market data reinforced expectations that the Federal Reserve (Fed) can afford to keep interest rates unchanged in the face of heightened inflation risks from higher oil prices.
The US Dollar Index (DXY), which tracks the value of the dollar against a basket of six major currencies, is holding near the 100.00 level, up 0.64% on the day.
However, traders see a growing chance that the Fed will raise interest rates this year. According to the CME FedWatch Tool, the probability of an interest rate augment of 25 basis points (bps) at the October meeting increased to 40% from 30% before the NFP report.
Looking ahead, New Zealand’s economic calendar for next week remains relatively blank, leaving investors focused on key US inflation data, including the Consumer Price Index (CPI) and Producer Price Index (PPI).
China’s CPI, PPI and trade balance data will also be closely watched, given New Zealand’s powerful trade links with China and their potential impact on the NZD/USD pair.
Technical analysis:
On the daily chart, the NZD/USD rate is 0.5800. The pair has a short-term bearish bias as the spot price is currently below the 50-, 100- and 200-day basic moving averages (SMAs), which are hanging overhead and reinforcing the powerful tone. Momentum indicators agree with this stance, with the Relative Strength Index drifting near 41 and the Moving Average Convergence Divergence (MACD) again in negative territory, indicating that downward pressure remains in play.
Upside, initial resistance is seen at the 200-day SMA near 0.5838, the 50-day SMA near 0.5867, and the 100-day SMA near 0.5902, creating a broader band of resistance that needs to be regained to ease the current bearish pressure. Without clear levels of technical support coming from moving averages or Fibonacci retracements just below the market in this data set, any further losses would likely expose prior price lows as the next benchmarks for sellers.
(The technical analysis for this story was written with the facilitate of an AI tool.)
Frequently asked questions about inflation
Inflation measures the augment in prices of a representative basket of goods and services. Headline inflation is usually expressed as a percentage change on a monthly (m/m) and annual (y/y) basis. Core inflation excludes more volatile items such as food and fuel, which can fluctuate due to geopolitical and seasonal factors. Core inflation is the figure economists focus on, and it is the level aimed at by central banks, which are required to keep inflation at a manageable level, usually around 2%.
The Consumer Price Index (CPI) measures the change in prices of a basket of goods and services over a period of time. It is usually expressed as a percentage change on a month-on-month (m/m) and year-on-year (y/y) basis. Core CPI is the figure that central banks target because it does not include variable spending on food and fuel. When core CPI rises above 2%, it typically results in higher interest rates and vice versa when it falls below 2%. Since higher interest rates are positive for a currency, higher inflation usually results in a stronger currency. The opposite situation occurs when inflation falls.
While it may seem counterintuitive, high inflation in a country causes the value of its currency to augment, and vice versa for lower inflation. This is because the central bank usually raises interest rates to combat higher inflation, which attracts more capital inflows from around the world from investors looking for a lucrative place to put their money.
Historically, gold was the asset that investors turned to in times of high inflation because it held its value, and while investors will often continue to buy gold for its safe and sound haven property in times of extreme market turmoil, in most cases this is not the case. This is because when inflation is high, central banks raise interest rates to combat it. Higher interest rates are bad for gold because they augment the opportunity cost of holding gold compared to interest-bearing assets or putting your money in a deposit account. On the other hand, lower inflation is usually good for gold because it lowers interest rates, making the dazzling metal a more viable investment alternative.
