NZD underperforms as US employment data bolsters near term yields

Daily Currency Update

The New Zealand dollar was among the worst performers over the Easter Break, falling more than 1% following a slew of US data sets. US treasury yields rose on Friday, buoyed by another strong US non-farm payroll print. Payrolls climbed more than 230,000 in March, in line with market expectations lifting yields and dragging the USD higher.

The New Zealand dollar slid back below US$0.63, extending losses through trade on Monday and testing overnight lows below US$0.62. Having touched US$0.6190, the NZD has found support and opened this morning buying US$0.6220.

With another Fed rate hike all but priced in, we expect the NZD to remain under pressure through the near term. While supported on moves below US$0.6180, upside moves will likely meet resistance above US$.6350 and approach US$0.64.

Our attention turns this week to US CPI and PPI inflation data ahead of retail sales. Despite the robust employment update last week, cracks are beginning to appear across the US economy. Labour market conditions are easing, and leading indicators point to significant weakness ahead.

While markets have priced in a 25-point hike in May, the Fed may need to consider pausing its current tightening cycle as we move toward and through June. All things being equal, a correction in US rate expectations will likely be the catalyst the NZD needs to climb back above US$0.64.