NZD/USD Vulnerable to Bearish Pressure: A Closer Look

The NZD/USD pair initially reached a five-day high at 0.6111 before declining to around 0.6065. This movement was driven by strong labor market data from the US, which indicated robust employment growth and potentially prompted a reevaluation of additional rate hikes by the Federal Reserve (Fed). As a result, the US Dollar gained traction, supported by increasing US bond yields.

The US Bureau of Labor Statistics reported that employment in the United States exceeded expectations, with a 339k increase in May compared to the consensus forecast of 190k. However, the Unemployment Rate slightly rose to 3.7% instead of the expected 3.5%. Average Hourly Earnings, which serve as an indicator of wage inflation, registered a year-on-year growth of 4.3%, slightly below the projected 4.4%.

While labor demand shows signs of deceleration, the strong employment growth and mounting inflationary pressures make a case for the Fed to reconsider a 25 basis points (bps) hike in their upcoming June meeting. Consequently, US bond yields have been trending upward, with the 10-year yield rising to 3.68%, a daily gain of 2.70%. Similarly, the 2-year yield stands at 4.51%, marking a 3.64% increase, and the 5-year yield is at 3.84%, up by 3.81%.

The Federal Reserve's ultimate objective is to achieve full employment and price stability. Therefore, the release of the May Consumer Price Index (CPI) next week will be crucial in shaping the expectations and considerations of the Federal Open Market Committee (FOMC) regarding future interest rate decisions. Currently, the CME FedWatch tool indicates that markets are still assigning higher probabilities to no rate hike in the upcoming June 13-14 meeting, but the possibility of a 25 bps hike has gained some relevance.

When examining the price action using technical analysis, it becomes evident that there was a notable retracement occurring at the 38.2% Fibonacci level, which coincided with the previous resistance level. This confluence of factors indicates a significant area of interest for traders. Presently, our focus lies in identifying a new bearish setup, aligning with the observed price movement and potential resistance, to potentially capitalize on a downward market trend.