NZD/USD cheers upbeat domestic catalysts, weak USD as markets gear up for US NFP

• NZD/USD stays beyond 200-day SMA for the first time since July.
• Positive fundamentals at home, RBNZ’s bank capital decision lead to scaling back of expectations for heavy rate cuts in 2020.
• US Dollar weakness, despite recent data recovery and trade headlines, also plays a role ahead of the key US jobs report.

NZD/USD takes the bids to 0.6550, nears the highest since August 06, at the start of Friday’s Asian session. In doing so, the quote stays above 200-day Simple Moving Average (SMA) for the first time since July this year.

The underlying catalysts have more to do with the improvement in New Zealand’s recent data points like from housing, commodity prices and business sentiment. Also contributing to the optimism are the talks that the New Zealand government is up for a ‘significant’ increase in infrastructure spending. This will increase the economy’s longer-term performance and cuts down the odds of rate cuts up for the later part of 2020.

Further, the Reserve Bank of New Zealand’s (RBNZ) bank capital decision also played a role after it allowed more time to banks as a transition period towards the new 16% capital requirement ration. In regards to this, the Australia and New Zealand Banking Group (ANZ) says, “While we believe the policy will tighten financial conditions more than the Reserve Bank anticipates, tweaks to the proposals (in particular allowing 2.5%pts of redeemable preference shares) soften the impact on bank funding costs, and the longer transition period will also take the edge off.”

With this, the ANZ removes the odds of August 2020 rate cut while holding expectations for a rate cut in May 2020.

On the other hand, the United States (US) continues to struggle as markets seem to ignore calls of trade talks from the Trump administration and President Donald Trump. Recent comments from Treasury Steve Mnuchin suggest US-China negotiators are actively working towards a deal while President Trump said trade meetings are going well. Even so, the Wall Street Journal (WSJ) recently reported that China and the US remain at odds over the value of farm goods Beijing will buy.

This dampened market’s risk recovery and stopped the US 10-year treasury yields around 1.80% with nearly two basis points of the rise. Additionally, improvement in the US Trade Balance and Factory Orders also couldn’t lure traders towards the greenback.

Given the absence of data/events up for publishing at home, markets will keep the cautious mode on before the November month US employment report. Increasing the tension is high expectations from the headlines Nonfarm Payrolls (NFP) at 180K despite the early signals indicating a disappointment to watch for.

Technical Analysis

August month high nearing 0.6590 and 0.6600 are likely immediate resistances on the Bull’s radar while sellers look for entry below a sustained break of 200-day SMA level of 0.6542.