NZD/USD eyes downtrend test as thoughts shift to China’s stock market rescue

NZD/USD was the best performing G10 FX name on Tuesday
Big gains in Chinese markets, a softer US dollar and a better-than-expected New Zealand jobs report underpinned the move
NZD/USD is likely to be driven by the performance of Chinese financial markets on Wednesday

A late flurry of buying after New Zealand’s jobs report sent NZD/USD to the top of the G10 FX leaderboard on Tuesday, leaving in on track for another retest of the downtrend it’s been stuck in throughout the entirety of 2024.

Already bid on a decline on a decline in US bond yields and massive gains in Chinese equities and yuan earlier in the session, the Kiwi extended its rally against the greenback to over 0.7% on the back of the jobs data which provided no smoking gun for an early rate cut from the Reserve Bank of New Zealand (RBNZ).

New Zealand jobs market slowly softening

Statistics New Zealand said unemployment ticked up a tenth to 4% in the December quarter, well below the 4.3% level expected by economists. The increase in unemployment was capped by a marginal reduction in the estimated labour force participation rate to 71.9%. Labour market underutilisation – which includes both unemployed and underemployed workers – rose by a larger 0.3 percentage points to 10.7%.

Employment growth was a touch firmer than consensus, rising 0.4% from Q3, while private sector wages growth printed at 1%, up two tenths on economist forecasts. From a year earlier, private sector wages grew 3.9%, down from 4.1% in the 12 months to September.

While the New Zealand labour force survey is notoriously volatile at times, at face value, the details of the Q4 report suggests job market conditions were cooling rather than collapsing entering 2024, eroding the case for the RBNZ to start easing policy rates as soon as May.

RBNZ events calendar perking up

RBNZ Governor Adrian Orr has an opportunity to guide markets on what he’s thinking when he delivers a speech on ‘The monetary policy remit and 2% inflation’ in a speech on February 16. The RBNZ’s next monetary policy decision arrives on February 28.

NZD/USD eyes downtrend test

Combined with the lower global bond yields, a softer US dollar and big gains in Chinese markets, the jobs data has brought NZD/USD back to within sight of the downtrend it’s been thwarted at on multiple occasions so far this year.

Given the strong bounce off support around .6050 earlier in the session, the path of least resistance may be higher for the Kiwi, especially should Chinese markets extend their rally today. Even though the basis of that rally is a financial markets ‘rescue’, muscle memory among traders typically aids NZD, AUD and commodities given we’ve become so accustomed to authorities stimulating the real economy since the GFC. At the margin, a higher wealth effect may help boost real world activity should it last beyond a fleeting moment. But that’s a long very bow.

On the topside, downtrend resistance is located at .6130, making that a potential target for longs in the near-term. Should it get there, traders can see how the price interacts at the level before deciding whether to cut, add or reverse their trade. Above, .6160 and .6185 are the levels to watch. Below, support kicks in from .6050. Remember to place a stop below your entry level that fits with an appropriate risk-reward for the trade.

-- Written by David Scutt

Follow David on Twitter @scutty

StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 76% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Please ensure you fully understand the risks involved by reading our full risk warning.

FOREX.com is a trading name of StoneX Europe Limited, and FOREX.com/ie is a domain operated by StoneX Europe Ltd, a member of StoneX Group Inc. StoneX Europe Ltd, is a Cyprus Investment Firm (CIF) company registered to the Department of Registrar of Companies and Official Receiver with a Registration Number HE409708, and authorized and regulated by the Cyprus Securities & Exchange Commission (CySEC) under license number 400/21. StoneX Europe is a Member of the Investor Compensation Fund (ICF) and has its registered address at Nikokreontos 2, 5th Floor, 1066 Nicosia, Cyprus.

StoneX Europe Limited is registered with the German Federal Financial Supervisory Authority (BaFin). BaFin registration ID: 10160255

FOREX.com is a trademark of StoneX Europe Ltd, a member of StoneX Group Inc.

The statistical data and the awards received refer to the Global FOREX.com brand.

This website uses cookies to provide you with the very best experience and to know you better. By visiting our website with your browser set to allow cookies, you consent to our use of cookies as described in our Privacy Policy.

Through passporting, StoneX Europe is allowed to provide its services and products on a cross-border basis to the following European Economic Area ("EEA") states: Austria, Bulgaria, Croatia, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden.

Additionally, StoneX Europe Ltd is allowed to provide Investment and Ancillary Services to the following non-EU jurisdiction: Switzerland.

StoneX Europe Ltd products, services and information are not intended for residents other than the ones stated above.

Tied Agent Information: KQ Markets Europe Ltd with Company No. HE427857.
Address: Athalassas 62, Mezzanine, Strovolos, Nicosia Cyprus.
Services Provided: Reception and Transmission of Orders.
Commencement Date: 06/12/2022
Website: KQ Markets - CFD Trading | KQ Markets

We may pay inducements, such as commissions or fees, to affiliates or third-party introducers for referring clients to us. This is in line with regulatory guidelines and fully disclosed where applicable.

StoneX Europe Ltd may make third party material available on this website which may contain information included but not limited to the conditions of financial markets. The material is for information purposes only and does not contain, and should not be construed as containing, investment advice and/or investment recommendation and/or an investment research and/or an offer of or solicitation for any transactions in financial instruments; any decision to enter into a specific transaction shall be made by the client following an assessment by him/her of their situation. StoneX Europe Ltd makes no representation or warranty and assumes no liability as to the accuracy or completeness of the information provided, nor any loss arising from any investment based on a recommendation, forecast or other information supplied. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. We are not under any obligation to update any such material. Any opinion made may be personal to the author and may not reflect the opinion of StoneX Europe Ltd.