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  • NZD/USD is consolidating around the 0.7250 mark having slipped back from earlier Asia Pacific and European session highs around 0.7300.
  • Looming US risk events over the next two days could shake things up.

NZD/USD is consolidating around the 0.7250 mark having slipped back from earlier Asia Pacific and European session highs in the 0.7300 region amid a modest pick-up in the US dollar on the day. The buck is seemingly trending higher primarily as a result of rising US government bond yields.

With NZD/USD having failed to break back into the 0.7300 region, the sellers regained control and pushed the pair back to within the confines of this week’s range. To the downside, the bottom of this range appears to be marked out by Tuesday’s sub-0.7210 low, while Wednesday’s highs of just above 0.7300 mark the top.

Tier one US data releases on Wednesday appear to have weighed on sentiment, although have failed to shake NZD/USD up enough to trigger a breakout of recent ranges. However, looming US risk events on over the next two days could provide some direction again; Thursday sees Fed Chair Jerome Powell speaking and the release of Weekly Jobless Claims numbers, while Friday sees the release of the February Labour Market Report, which will be the main event of the week from a global macro perspective.

Driving the day

Positive commentary from US President Joe Biden failed to boost the market’s broader appetite for risk on Wednesday, with NZD suffering as a result; the US President reportedly said that the country would have enough Covid-19 vaccines for every adult to receive their first vaccine by the end of May, after pharmaceutical giant Merck & Co agreed to participate in the production of Johnson & Johnson’s recently approved Covid-19 vaccine.

As noted above, focus instead seems to have returned to bond markets amid another surge higher in US government bond yields; US 10-year yields hit highs of not far from the 1.50% on Wednesday and are currently around 7bps higher on the day. Markets fear a return to the kind of price action seen last week, where yields were moving as much as 20bps per day. As a result, US equities are a little lower, with the S&P 500 down half a percent.

Further weighing on risk appetite on Wednesday has been worse than expected US data; The recently released February ISM Services PMI survey was underwhelming, with the headline index dropping to 55/3 versus expectations it would remain steady at 58.7. The subindices also showed weakness, with Business Activity dropping to 55.5 from 59.9 in January, Employment dropping to 52.7 from 55.2 in January and New Orders dropped nearly 10 points to 51.9 from 61.8. Capital Economics think the weakness represents severe winter weather conditions seen across the country last month. Meanwhile, Prices Paid shot higher to 71.8 from 64.2 amid supply shortages, a jump which Capital Economics thinks may foreshadow an increase in Core PCE to about 2.4% within the next few months.

Sticking with the theme of US data, Wednesday also saw the release of ADP’s estimate of the number of jobs added to the US economy in February; their estimate suggests the economy gained 117K jobs, lower than expectations for their estimate to show a job gain of 177K jobs. Capital Economics note that this data was a disappointment given that “the drop-off in coronavirus case numbers and the resulting lifting of containment measures should be giving the economy a bigger shot in the arm”. The economic consultancy continues that “the disappointing ADP figure presents a clear downside risk to our otherwise above-consensus estimate that non-farm payrolls increased by 500,000 last month”, but they caveat that “given the ADP’s patchy correlation with the official employment data and the strength of the high-frequency data, we are happy to stick with that estimate”.