NZD/USD pulls back from two-week top as USD reverses a part of Friday’s post-NFP downfall

• NZD/USD attract some sellers on Monday and is pressured by the emergence of some USD buying.
• Elevated US bond yields and a generally softer risk tone revive demand for the safe-haven buck.
• The downside seems limited ahead of the RBNZ meeting and the key US CPI report later this week.

The NZD/USD pair meets with a fresh supply on the first day of a new week and erodes a part of Friday’s strong move up to the 0.6220 area, or over a two-week high. The steady intraday descent drags spot prices to the 0.6180 region during the Asian session and is sponsored by the emergence of some buying around the US Dollar (USD).

In fact, the USD Index (DXY), which tracks the Greenback against a basket of currencies, regains positive traction and snaps a two-day losing streak to its lowest level since June 22, touched on Friday in the aftermath of the rather unimpressive US jobs data. It is worth recalling that the headline NFP print showed that the US economy added 209K jobs in June, marking the fewest in 2-1/2 years and signalling that the job market is cooling. This could allow the Federal Reserve (Fed) to soften its hawkish stance, which, in turn, weighed heavily on the buck.

That said, the persistently strong wage growth and a slight drop in the unemployment rate pointed to still tight labor market conditions. This reaffirms market expectations that the US central bank will hike interest rates by 25 bps at the July meeting. The outlook remains supportive of elevated US Treasury bond yields and lends some support to the USD. Apart from this, a generally weaker risk tone further benefits the Greenback’s relative safe-haven status and contributes to driving flows away from the perceived riskier New Zealand Dollar (NZD).

A slew of weak economic data from China released over the past week or so, including the softer inflation figures on Monday, add to worries about slowing growth in the world’s second-largest economy. Furthermore, the risk of a further escalation in the US-China trade conflict continues to weigh on investors’ sentiment, which is evident from a generally weaker tone around the equity markets. This, in turn, is seen as another factor weighing on antipodean currencies, including the Kiwi, and supports prospects for a further depreciating move for the NZD/USD pair.

Traders, however, might refrain from placing aggressive bets and prefer to wait on the sidelines ahead of the Reserve Bank of New Zealand (RBNZ) monetary policy meeting on Wednesday. This will be followed by the crucial US consumer inflation figures, which will play a key role in influencing the Fed’s near-term policy outlook. In the meantime, traders will take cues from the broader risk sentiment, which will drive demand for the safe-haven USD and provide some impetus to the NZD/USD pair in the absence of any relevant macro data from the US.

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