NZD/USD: Mildly positive aorund 0.6500 after mixed New Zealand employment data

• NZD/USD initially reacted to the upbeat Unemployment Rate but failed to ignore Employment Change.
• Risk recovery also played its role to extend the RBA-led gains.
• Speech from RBA’s Lowe, China Caixin PMI and the US data will be in the spotlight.

NZD/USD remains mildly positive near 0.6500 after New Zealand’s key employment data release during the early Wednesday morning in Asia.

New Zealand’s fourth quarter (Q4) employment data suggests the headline Unemployment Rate declining to 4.0% from 4.2% expected and prior whereas Employment Change slipped below 0.3% forecast to 0.0%. Further details suggest that the Labour Cost Index matched 2.4% market consensus on YoY while rising beyond 0.5% expectations to 0.6% on QoQ. Even so, the Participation Rate softened to 70.1% compared to 70.4 expected and prior.

In a reaction to the data, the Kiwi pair initially popped to a four-day high of 0.6501 but pulled back to 0.6487 after few minutes.

The pair benefited from the RBA’s surprise optimism on Tuesday. In doing so, it paid less attention to the broad US dollar strength and upbeat US data. The reason could also be attributed to the broad risk recovery that pushed the US 10-year treasury yields up by eight basis points (bps) to 1.6%.

Late on Tuesday, New Zealand’s GDT Price Index slipped below 0.9% market forecasts to -4.7% with the prices of Whole Milk Powder (WMP) down 6.2%. On this, analysts at the Australia and New Zealand Banking Group (ANZ) said, “The movement was largely aligned with futures expectations and certainly not as large as some had feared. Prior to the event, it was feared demand from Chinese buyers may have been muted at this event, but this result shows there was still plenty of buying interest. As expected, the later delivery contracts performed better than the nearby contracts for WMP but the difference wasn’t particularly pronounced.”

Looking forward, traders will pay close attention to the speech by the RBA’s Governor Philip Lowe as well as China’s Caixin Manufacturing PMI for the immediate direction. While the RBA’s Lowe might reiterate the central bank’s optimism, as conveyed the day before, Chinese activity gauge is also likely to improve to 52.6 from 52.5. Following that, the US economic calendar will also be worth observing as it carries the ADP Employment Change, Trade Balance and ISM Non-Manufacturing PMI data.

Technical Analysis

The pair still needs to cross a 200-day SMA level of 0.6505 to aim for 0.6555 resistance comprising December 18, 2019, low and January 29, 2020 high.