Rebounds from 0.6050 ahead of US services PMI, NZ Employment data

• NZD/USD recovers from 0.6050 as US Dollar struggles to extend recovery ahead of US Services PMI data.
• The market mood is downbeat as robust US labor demand has dampened the Fed’s early rate-cut prospects.
• Weak NZ Employment data would allow RBA policymakers to lean towards a dovish policy stance.

The NZD/USD pair discovers buying interest near 0.6050 and rebounds to near 0.6080 in the London session. The near-term outlook of the kiwi asset is still bearish as it hovers near a two-month low after a sell-off led by the upbeat United States Nonfarm Payrolls (NFP) data for January that eased hopes of early rate cuts by the Federal Reserve (Fed).

S&P500 futures have posted decent losses in the European session, portraying a decline in the risk appetite of the market participants. The US Dollar Index (DXY) trades sideways above 104.00 ahead of the US ISM Services PMI for January, which will be published at 15:00 GMT.  Services PMI representing the service sector, which accounts for two-thirds of the economy, is anticipated to have increased to 52.0 from 50.6 in December.

On the New Zealand Dollar front, investors await the Q4 Employment data scheduled for Tuesday. According to the estimates, the Unemployment Rate increased sharply to 4.3% against 3.9% in the third quarter of 2023. The Labor Cost Index grew at a steady pace of 0.8%. A downbeat labor market data could force Reserve Bank of New Zealand (RBNZ) policymakers to consider early rate cuts.

NZD/USD delivers a breakdown of the Bearish Flag chart pattern formed on a daily timeframe. This indicates a continuation of a downside trend after a short-lived pullback move. The 20-day Exponential Moving Average (EMA) near 0.6137 continues to act as a major barricade for the New Zealand Dollar bulls.

The 14-period Relative Strength Index (RSI) has shifted into the bearish range of 20.00-40.00, which indicates that a bearish momentum has been triggered.

More downside would appear if the asset dropped below the immediate low of 0.6050, exposing the asset to a June 8 low at 0.6026, followed by the psychological support of 0.6000.

On the flip side, further recovery above January 24 high at 0.6150 would drive the asset towards January 31 high at 0.6075 and January 16 high at 0.6208.

NZD/USD daily chart