The New Zealand dollar has started with limited movement. In the North American session, the pair is trading at 0.7020, down 0.10% on the day.
Last week, the New Zealand dollar fell every day until Friday, when the currency rebounded with gains of 0.95%. The sharp upturn was in response to the US unemployment rate, which rose from 5.6% to 5.9%. Nonfarm payrolls came in at 850 thousand, better than the forecast of 700 thousand. Still, the jump in unemployment made the markets uneasy, with growing speculation that the labour market is still not strong enough to push the Fed to tighten policy. This sent the US dollar broadly lower on Friday.
With US companies struggling to find workers, some 15.3 million Americans are receiving unemployment benefits. The shortage in labor supply has led to increased wage and inflation pressures. Wages soared to 3.6% in June YoY, just shy of the estimate of 3.7%, and sharply higher than the May release of 1.9%. Higher wages will mean higher inflation, and that could put pressure on the Fed to tighten monetary policy.
Investors are looking ahead to the FOMC minutes, which will be released on Wednesday. The minutes may provide some guidance as to what steps the Fed may be considering. The jump in US inflation had raised speculation about the Fed tightening policy, but Fed Chair Powell has insisted that the surge in inflation is temporary and will not affect Fed policy. Still, the Fed surprised the markets last month, when it projected raising interest rates twice in 2023. Previously, most Fed members had said that rates would not rise prior to 2024.
New Zealand will release NZIER Business Confidence later on Monday (22:00 GMT). The indicator has posted declines since 2017, but the numbers are getting better. In Q1 of 2020, at the height of Covid, Business Confidence came in at -70. The 2o21 Q1 reading came in -13 and the markets are hoping for a reading closer to zero for the second quarter.
- There is resistance at 0.7096, followed by 0.7160
- On the downside, the pair has support at 0.6957 and 0.6882