NZD/USD finally finds buyers at 0.7100 as US yields slump, Nonfarm Payroll eyeds

• NZD/USD bulls are defending daily lows near 0.7100 ahead of critical events. 
• NFP and the RBNZ are the next major catalysts for the pair.

On US dollar strength on Thursday, the New Zealand dollar has given back the bulk of its post-third-quarter jobs data that has reinforced bets the Reserve Bank of New Zealand will hike rates later this month.

However, the US dollar rebounded on Thursday, recovering after the Federal Reserve repeated it saw high inflation as transitory. A buy the US dip outcome has led to a break of 0.71 the figure in NZD/USD. The pair has fallen from a high of 0.7178 to a low of 0.7094 so far and into daily support. 

RBNZ rate hike on the cards

Firstly, earlier in the week, the third-quarter NZ Employment Change arrived at 4.2% YoY, sharply higher than the consensus forecast of 2.7%, according to a Bloomberg survey. The increase in the participation rate and a drop in the jobless rate was a highly positive result leading to demand for the kiwi.

The data highlighted underlying strengths in the labour market. Consequently, RBNZ tightening expectations remain high, with WIRP suggesting a 5 bp hike is fully priced in for November 24, with nearly 30% odds of a 50 bp move.

The bird was further supported on Wednesday after the Fed announced a widely expected $15 billion monthly taper to its $120 billion in monthly purchases of Treasuries and mortgage-backed securities. Additionally, the Fed's Chairman Jerome Powell emphasise that there was no rush at the central bank to hike borrowing costs.

The US dollar lost ground but investors were keen to buy the dip right up until the beginning of the New York session, where the greenback came under pressure from Treasury yields. In more recent trade, the US 10-year Treasury yield touched a session low of 1.514%, the lowest since Oct. 14 which could give some support to NZD/USD ahead of what is expected to be a period of consolidation before Friday's Nonfarm Payrolls event. 

All eyes turn to the NFP event

A strong report is expected, which might be the reasoning for the rebound in the greenback in the past 24-hours. ''We expect employment and wage gains to slow in the year ahead as the boosts from fiscal stimulus and reopening fade and the participation rate rises, but, more immediately, momentum appears to be up again as the drag from Delta fades,'' analysts at TD Securities said.

''We forecast up 550k in total for payrolls in October, with private payrolls up 600k. We forecast up 0.5% m/m for hourly earnings, with the 12-month change rising to 5.0% from 4.6%.''

NZD/USD technical analysis

As per the Asian session's analysis, the focus was on the downside following the rally into higher liquidity. A correction into the 50% mean reversion location was an expected move, but what followed was a very strong followthrough to test November lows.

Prior analysis:

Live update:

As illustrated, the price action since the prior analysis has followed accordingly, even testing the 50% mean reversion level as an area of resistance following the breakout to the downside. At this juncture, and holding in daily support, there could be a period of consolidation as markets get set for the end of the week's showdown in the US Nonfarm Payrolls event.