NZD/USD appreciates above 0.5950 heading into the US NFP release

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The New Zealand Dollar (NZD) extends gains against the US Dollar (USD) on Friday, reaching session highs at 0.5970, after bouncing from 0.5930 earlier on the day.

NZD/USD hits session highs at 0.5970 after bouncing from 0.5930 lows earlier on Friday.
The US Dollar loses ground ahead of the US Nonfarm Payrolls release.
New Zealand's employment data feeds hopes that the RBNZ will hike rates this year.

The New Zealand Dollar (NZD) extends gains against the US Dollar (USD) on Friday, reaching session highs at 0.5970, after bouncing from 0.5930 earlier on the day. The Greenback loses ground despite a cautious market mood, as investors shift their focus from Iran to April’s US Nonfarm Payrolls (NFP) report.

According to the market consensus, the US economy is expected to have created 62K new jobs in April, less than half the 178K fresh payrolls reported in March. The risk is on a weak reading that would offset the Federal Reserve’s (Fed) hawkish tweak of last week’s meeting, with some policymakers calling to remove the “easing bias” line from the central bank’s statement.

On the geopolitical front, an exchange of fire between the US and Iran cast doubt about the fate of the peace process on Thursday. US President Donald Trump played down these skirmishes and reiterated that the ceasefire remains in place, urging Tehran, once again, to sign a deal and put an end to the war.

Oil prices bounced up from Thursday's lows amid news from Iran, but remain well below last week's highs. The US benchmark West Texas Intermediate (WTI) trades at $91, and the Brent Oil barrel is below the key $100 level, which provides some support to the Kiwi, as New Zealand is an oil-importing country.

Data from New Zealand released earlier this week showed an unexpected decline in the Unemployment Rate to 5.3% in Q1 from 5.4% in Q4, despite a lower-than-expected increase in net employment. Apart from that, Labour Costs grew beyond expectations, adding to inflationary pressures, and keeping hopes of a Reserve Bank of New Zealand (RBNZ) near-term rate hike alive.

Economic Indicator

Nonfarm Payrolls

The Nonfarm Payrolls release presents the number of new jobs created in the US during the previous month in all non-agricultural businesses; it is released by the US Bureau of Labor Statistics (BLS). The monthly changes in payrolls can be extremely volatile. The number is also subject to strong reviews, which can also trigger volatility in the Forex board. Generally speaking, a high reading is seen as bullish for the US Dollar (USD), while a low reading is seen as bearish, although previous months' reviews and the Unemployment Rate are as relevant as the headline figure. The market's reaction, therefore, depends on how the market assesses all the data contained in the BLS report as a whole.

Why it matters to traders?

America’s monthly jobs report is considered the most important economic indicator for forex traders. Released on the first Friday following the reported month, the change in the number of positions is closely correlated with the overall performance of the economy and is monitored by policymakers. Full employment is one of the Federal Reserve’s mandates and it considers developments in the labor market when setting its policies, thus impacting currencies. Despite several leading indicators shaping estimates, Nonfarm Payrolls tend to surprise markets and trigger substantial volatility. Actual figures beating the consensus tend to be USD bullish.

Economic Indicator

Unemployment Rate

The Unemployment Rate, released by the US Bureau of Labor Statistics (BLS), is the percentage of the total civilian labor force that is not in paid employment but is actively seeking employment. The rate is usually higher in recessionary economies compared to economies that are growing. Generally, a decrease in the Unemployment Rate is seen as bullish for the US Dollar (USD), while an increase is seen as bearish. That said, the number by itself usually can't determine the direction of the next market move, as this will also depend on the headline Nonfarm Payroll reading, and the other data in the BLS report.