The New Zealand dollar extended gains against the US dollar, climbing above 0.5650, as traders positioned ahead of the highly anticipated US Non-Farm Payrolls (NFP) report. The currency pair found support from improved risk sentiment and a pullback in the greenback, with investors reassessing the Federal Reserve’s rate path.
Despite the uptick, upside momentum in NZD/USD remains fragile as market participants remain cautious. The upcoming NFP release could significantly influence Fed policy expectations, dictating the next move for the US dollar. A stronger-than-expected labor market report may reinforce rate hike bets, pushing the greenback higher and limiting further advances for the kiwi.
Recent data from New Zealand has offered mixed signals, adding to uncertainty about the Reserve Bank of New Zealand’s monetary stance. While inflation remains a concern, sluggish economic growth has fueled speculation that the RBNZ may hold off on further tightening. This policy divergence with the Fed continues to be a key driver of NZD/USD price action.
The US dollar’s recent weakness has been attributed to declining Treasury yields, with markets increasingly speculating that the Fed could pivot to a more dovish approach later in the year. If the NFP report shows signs of labor market cooling, expectations of an eventual rate cut could pressure the dollar further, offering support to risk-sensitive currencies like the New Zealand dollar.
However, a strong jobs report could quickly reverse these trends, boosting Treasury yields and reinforcing dollar strength. Given the uncertain outlook, traders are likely to tread cautiously until the NFP release provides more clarity on the Fed’s potential next steps. NZD/USD remains vulnerable to sharp swings, with volatility expected to pick up in the coming sessions.
