Sticks to NZ jobs data-inspired gains, bearish potential intact

• NZD/USD scales higher for the second straight day in reaction to the upbeat domestic jobs data.
• A modest downtick in the US bond yields undermines the USD and lends support to the major.
• The technical setup favours bears and warrants caution before positioning for additional gains.

The NZD/USD pair gains some positive traction for the second straight day on Wednesday and recovers further from its lowest level since November 23 touched earlier this week. Spot prices currently trade around the 0.6100 round-figure mark, up just over 0.30% for the day, and draw support from a combination of factors.

The New Zealand Dollar (NZD) strengthens in reaction to a modest upside surprise from the December quarter labour market report, which showed that the number of people employed rose by a solid 0.4%. Adding to this, the Unemployment Rate was less than the 4.2% anticipated and forecasted by the Reserve Bank of New Zealand (RBNZ). This, along with a modest US Dollar (USD) downtick, acts as a tailwind for the NZD/USD pair.

Any meaningful USD losses, however, seem elusive in the wake of growing acceptance that the Federal Reserve (Fed) will keep interest rates higher for longer amid a still resilient US economy. Apart from this, the risk of a further escalation of geopolitical tensions in the Middle East and worries about slowing growth in China could act as a tailwind for the safe-haven buck, which, in turn, might cap the upside for the NZD/USD pair.

From a technical perspective, the recent downfall from a multi-month peak touched in December has been along a downward-sloping channel. This points to a well-established short-term downtrend and favours bearish traders. Moreover, oscillators on the daily chart – though have been recovering from lower levels – are still holding in the negative territory, suggesting that the path of least resistance for the NZD/USD pair is to the downside.

Hence, any subsequent move up is likely to confront stiff resistance and remain capped near the top end of the aforementioned channel, currently pegged around the 0.6140 region. That said, a sustained breakout through, leading to a subsequent strength beyond the 0.6175 area, or last week’s swing high, might trigger a short-covering rally and lift the NZD/USD pair above the 0.6200 mark, towards the 0.6225-0.6230 resistance zone.

On the flip side, the Asian session low, around the 0.6075 area, could protect the immediate downside ahead of the monthly through, around the 0.6040-0.6035 region. The subsequent fall could drag the NZD/USD pair below the 0.6000 psychological mark, towards the descending trend-channel support near the 0.5975 zone. The latter should act as a key pivotal point, which if broken will be seen as a fresh trigger for bearish traders.

NZD/USD daily chart

Technical levels to watch