New Zealand Dollar gains against US Dollar due to unfavorable US NFP backdrop

The New Zealand Dollar (NZD) is experiencing a rise of 0.16% against the US Dollar (USD) during the European trading session on Thursday. This upward movement occurs as the US Dollar underperforms, largely due to weak United States (US) ADP Employment Change data, which creates an unfavorable backdrop before the Nonfarm Payrolls (NFP) data for August, which is scheduled for Friday. At this moment, the US Dollar Index (DXY) is trading 0.3% lower, nearing 99.26.

On Wednesday, the US ADP reported that the private sector created 38,000 new jobs in August, lower than the 47,000 estimates and the previous release of 46,000. According to TD Securities, the US labor market is expected to stabilize in August. The bank's macro team anticipates an August NFP rebound to 95k, following a decline of 23k in July.

However, TD Securities views this gain as a recovery from July's weakness rather than the start of a stronger hiring trend. Similarly, TD Securities anticipates the unemployment rate to remain stable, with a likely unemployment rate of 4.1% with balanced risks.

Moreover, comments from New York Fed Bank President John Williams suggest that "inflation expectations are contained" and "recent data on price pressures has been encouraging," leading to doubts about upside inflation risks. For the NZD, market participants doubt that the Reserve Bank of New Zealand (RBNZ) will raise interest rates at the next policy meeting after hiking them to 2.75% on Wednesday.

MUFG/BTMU analysts highlight that RBNZ Governor Anna Breman has taken a cautious stance on the policy outlook, emphasizing that "it's likely that there will be further increases in the OCR, but the timing is highly uncertain because we will consider the effects of the two hikes that we've done now, and also the new information that's happening, and how that is affecting the medium-term inflation outlook."

In the daily chart, NZD/USD is currently at 0.5863, trading beneath the 20-period Exponential Moving Average (EMA) at 0.5898. This positions the near-term bias as bearish, despite the broader recovery seen off the 0.56 area in recent weeks. The pair has also dropped below the former rising trend-line support, now a barrier at 0.5924, suggesting that the latest pullback is eroding the bullish structure.

The Relative Strength Index (RSI) at 45.3 is drifting toward neutral, hinting at fading upside momentum rather than outright oversold conditions.

The potential move upward for NZD/USD could be supported by the next technical resistance level at the 20-period EMA at 0.5898. A daily close above this level would alleviate immediate selling pressure and open the path to the broken ascending trend line at 0.5924, which could serve as a stronger cap for the currency pair. However, currently, there are no nearby technical supports defined below the market, leaving NZD/USD exposed to further downside if it fails to reclaim the 0.5898 and 0.5924 levels.