05.05.202108:49 Forex Analysis & Reviews: NZD/USD. Declining unemployment, rising inflation and Yellen's hawkish statement

Today, the New Zealand dollar received support from macroeconomic statistics. New Zealand released its key data on labor market growth in the country during the Asian session on Wednesday. The result exceeded expectations – all components of the release were in the "green zone", thus confirming the recovery of the national economy.

As a result, NZD reacted with growth, but quite average due to the Yellen factor. The New Zealander, paired with the US counterpart, only increased to 0.7170, rebounding from multi-day lows. However, today's release is assumed to be a "delayed action" release. Unlike many other major currencies, the New Zealand dollar has its own reasons for its growth. Therefore, as soon as the US currency weakens again, the buyers of NZD/USD will be able to develop the upward trend not only due to the dollar's devaluation.

Based on the published data, the unemployment rate in the island nation declined to 4.7% in the Q1 of this year, when the general forecasts said that this indicator should have remained at the level of the 4th quarter, which is around 4.9%. In fact, unemployment has been moving down for the second quarter in a row, and at a faster pace. The growth rate of the number of employed increased by 0.6% in annual terms, with a forecast of growth of up to 0.3% and up to 0.3% in annual terms, with a forecast of a decline to -0.1%. Both indicators entered the "green zone", exceeding the forecasted values. At the same time, the share of the economically active population in the country rose to 70.4%. The level of wages in the first quarter increased by 0.4% (taking into account paid overtime) and by 0.5% (excluding "overs").

It should be recalled here that the data on New Zealand 's inflation growth published last week also supported the New Zealand dollar. During the first quarter of this year, positive dynamics was recorded: the consumer price index rose to 0.8% (from the previous value of 0.6%) in quarterly terms, and to 1.5% with a forecast of growth of up to 1.4% in annual terms.

Thus, inflation is growing at a faster pace, and the unemployment rate has been consistently declining for two quarters, getting closer to pre-crisis levels. For example, the unemployment rate hovered in the range of 4.0%-4.4% from the beginning of 2018 to the second quarter of 2020. To date, as mentioned above, the unemployment rate has fallen to 4.9%.

In general, the above-mentioned releases have neutralized rumors that the Reserve Bank of New Zealand may decide to cut the interest rate into negative zone. And although the RBNZ maintained a cautious attitude at its last meeting, it assured the markets that it will maintain the status quo in the near future. It is believe that after today's publication, hawkish sentiments will begin to return to the market.

However, despite the fairly strong New Zealand releases, the NZD/USD buyers did not react. This is due to the growth of the US dollar index, which strengthens its position again. First, the USD bulls received support from the White House. According to US media reports, Joe Biden plans to sign an executive order in the near future to raise the minimum wage for federal contractors to $ 15 per hour.

In addition, the US currency reacted to yesterday's comments by US Treasury Secretary Janet Yellen. Speaking at an economic summit, she said the Fed would probably have to raise interest rates to prevent the economy from overheating. It is noteworthy that Fed Chairman Jerome Powell previously ruled out such a scenario, so these words of the former one, and now the head of the US Treasury Department, surprised the markets. Considering this factor, long positions on the NZD/USD pair are still risky, due to the background pressure of the dollar. But if Powell does not agree with the above scenario, the national currency will be under pressure once again, allowing the NZD to implement its potential.

Technically, it will be possible to talk about the development of the upward trend when the NZD/USD pair on the daily chart consolidates above the upper limit of the Kumo cloud (which also coincides with the Tenkan-sen line), that is, above the level of 0.7200. In this case, the Ichimoku Kinko Hyo indicator will form a bullish signal "Parade of Lines", and the price itself will be located between the middle and upper lines of the Bollinger Bands indicator. Here, the price is likely to rise to the next resistance level set at 0.7280 and corresponds to the upper line of the Bollinger Bands indicator. Since the beginning of March, buyers of NZD/USD have repeatedly tested this target, but they yield every time, retreating from the impassable 0.73 mark. Therefore, the level of 0.7280 can be considered as an upward target, without claiming higher price values.