NZD/USD retreats from above 0.6060 as USD Index refreshes day’s high

The NZD/USD pair has delivered a decent recovery move after sensing buying interest near 0.6050 in the early European session. The recovery move in the Kiwi asset could be concluded as the US Dollar Index (DXY) has refreshed its intraday high at 104.22.

S&P500 futures have covered significant losses added in Asia, portraying recovery in the risk-taking ability of the market participants. The US Dollar Index (DXY) has come out of the woods and has climbed above the immediate resistance of 104.20. Investors seem gung-ho for the US Dollar as the Federal Reserve (Fed) is expected to raise interest rates further to discount the impact of consistently rising additions of fresh talent into the labor market.

On Friday, United States Employment data showed that it would be early for Fed chair Jerome Powell to pause the policy-tightening spell as higher interest rates and tight credit conditions by the US regional banks are failing to force firms to slow down the hiring process.

In May, the US labor market was filled with fresh addition of 339k, significantly higher than expectations. Contrary to that, the Unemployment Rate rose to 3.7%. Monthly Average Hourly Earnings matched expectations at 0.3% while the annual figure decelerated marginally to 4.3%.

Analysts at TD Securities pointed out that payroll strength keeps the door open for another rate hike from the Fed. “The May jobs report should leave the hike option fully on the table for the Fed. If Fed officials were looking for clear signs of labor-market slowing, we do not think this report clearly offers that perspective despite the rise in the UE rate. We continue to look for the Fed to lift rates by a final 25bp to 5.25%-5.50% range in June, but also acknowledge that the FOMC's decision will be a very close call.”

On the Kiwi front, Caixin Services PMI (May) matched expectations and provided some support to the New Zealand Dollar. The economic data justified expectations at 57.1. A collaborative impact of upbeat factory activity and decent Services PMI indicates that the Chinese economy is right on track after dismantling Covid protocols.

It is worth noting that New Zealand is one of the leading trading partners of China and economic activities in China with better scale support the New Zealand Dollar.