Forex Market: NZD/USD extends pullback from 13 1/2-month highs on dovish RBNZ monetary policy outlook, US NFP report now in focus

NZD/USD continued pulling back from recent 13 1/2-month highs on Friday, after Reserve Bank of New Zealand warned of a “severe and long-lasting” economic impact from the coronavirus pandemic, while markets are now expecting the key US Non-Farm Payrolls report later in the day for clues over strength of US economic recovery.

RBNZ Governor Adrian Orr hinted at a rather dovish monetary policy outlook, as the central bank considers the use of additional tools in the near future to support New Zealand’s economy. According to Orr, those instruments include “various forms of negative wholesale interest rates, further quantitative easing using large scale purchases of domestic and foreign assets, direct lending to banks and forward guidance.”

RBNZ Monetary Policy Committee members are scheduled to meet on September 22nd, when they are expected to outline the bank’s future monetary policy strategies and tools as well as a possible time frame for their use.

Meanwhile, the US Dollar seemed to have halted its recent depreciation against major peers, but still, sentiment remains weak because of US economic growth concerns and an outlook pointing to low interest rates for a longer period of time. Yesterday Federal Reserve President for Chicago Charles Evans said that the central bank could pledge to keep borrowing costs close to zero until US inflation rate accelerates to 2.5%.

As of 7:00 GMT on Friday NZD/USD was edging down 0.17% to trade at 0.6700, while moving within a daily range of 0.6688-0.6714. On Wednesday the pair climbed as high as 0.6789, which has been its strongest level since July 19th 2019 (0.6791). The major pair rose 1.63% in August, while marking its fifth straight month of gains.

In terms of economic calendar, today’s market focus will be on the more comprehensive non-farm payrolls report, which reflects employment in US public and private sectors. Employers in all segments of US economy, excluding the farming industry, probably added 1,400,000 new jobs in August, according to market expectations, after a job gain of 1,763,000 in July.

Meanwhile, the rate of unemployment in the country probably eased to 9.8% in August, according to estimates, from 10.2% in July. The official government report is due out at 12:30 GMT.

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 7.2 basis points (0.072%) as of 6:15 GMT on Friday, down from 7.4 basis points on September 3rd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.6726
R1 – 0.6759
R2 – 0.6806
R3 – 0.6839
R4 – 0.6871

S1 – 0.6679
S2 – 0.6646
S3 – 0.6599
S4 – 0.6552

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