Mixed Employment Data Drives NZD/USD Lower

Early Wednesday, the NZD/USD broke sharply lower to 0.6876 before recovering to finish at 0.6898, down 0.0014 or -0.21%. The selling was partly due to the interest rate cut in Australia, a weaker stock market and a sharp decline in commodities. However, the biggest influence was likely the mixed reaction to the New Zealand employment report.

The report showed the number of employed individuals rising 1.2% in the first quarter, an even faster clip than the fourth quarter increase of 0.9% and the consensus estimate of 0.7%. The unemployment rate for the first quarter ticked higher to 5.7% from 5.4% (revised higher from 5.3%) the prior quarter and above the analyst estimate of 5.5%.

The AUD/USD continued to weaken early Wednesday after Tuesday’s steep sell-off, but technically oversold conditions helped trigger an intraday reversal to the upside. The last reading for the Aussie was 0.7504, up 0.0022 or +0.29%.

The catalyst behind the selling pressure was an interest rate cut by the Reserve Bank of Australia. The move took place in reaction to last week’s softer-than-expected inflation data for the March quarter. The 0.25 basis point cut brought the benchmark rate to 1.75 percent.

Short-covering and profit-taking continued to drive the USD/JPY higher. A potentially bullish technical chart pattern also helped encourage further position-squaring. The strong follow-through rally drove the Forex pair as high as 107.426 before settling at 107.119, up 0.522 or +0.49%.

The U.S. Dollar reversed to the upside against the Japanese Yen after the Forex pair reached its lowest level since October 2014, when the Bank of Japan launched its second massive round of quantitative easing. Some traders blame the lack of liquidity due to a bank holiday in Japan for the profit-taking and short-covering rally.

The EUR/JPY traded higher after two days of consolidation. Technically oversold conditions were primarily responsible for the rally after last week’s steep sell-off. Position-squaring driven by speculative buying fueled by thoughts of a Bank of Japan intervention also helped underpin the market. The last reading showed the EUR/JPY at 123.094, up 0.541 or +0.44%.

The USD/CNY posted a small gain on Wednesday, closing at 6.50700, up 0.00415 or +0.06%. The U.S. Dollar firmed against the Yuan after China’s central bank fixed the Yuan currency nearly 0.60 percent weaker against the dollar, according to the national foreign exchange market, the biggest downward move since devaluing the unit in August last year.