NZD/USD extends losses for the sixth straight day, underpinned by robust US labor market data

Wall Street pares some of Thursday’s losses on disappointing earnings from megacap tech companies. The lack of economic data in the United States (US) keeps NZD/USD traders bracing for the next week’s Federal Open Market Committee (FOMC) monetary policy decision, with the Federal Reserve (Fed) expected to deliver a 25 bps increase to the Federal Funds Rate (FFR), toward the 5.25%-5.50% area.

That follows a week that witnessed solid US economic data, as unemployment claims fell below estimates portraying a strong labor market and sparking fears for further Fed tightening, even though US retail sales printed mixed results. Turning to house market data, Housing Starts, Building Permits, and Existing Home Sales witnessed a dip after printing solid figures in May.

According to data from the CME FedWatch Tool, market players have fully priced in the next week’s increase but revised their bets upward from last week’s 19.8% to 28.0%.

Elsewhere, the latest Reserve Bank of New Zealand (RBNZ) monetary policy keeping rates unchanged is weighing on the New Zealand Dollar (NZD), which extended its weekly losses for almost 3%. That, despite fears of a slower recovery in China, despite the People Bank of China’s (PboC) efforts to prod its economy and achieve its annual target, would keep the NZD pressured.

Given the backdrop, the NZD/USD is warranted to extend its losses, but it would depend on the Fed and its Chair Jerome Powell to sustain a hawkish posture to keep the downtrend in the near term. Otherwise, the NZD/USD could recover after the FOMC’s decision.