By Stuart Talman, XE currency strategist
The buoyant risk sentiment that has punctuated markets over the past fortnight looked a little shaky through Thursday, risk assets trading on the back foot following earnings misses from Netflix and Tesla, negative China newsflow and a smaller-than-expected weekly jobless claims data print.
Having logged intraday gains across 7 of the past 8 trading days, the S&P500's surge to fresh 15-month highs appeared to be losing momentum during Wednesday's session. Sellers have wrestled back control through Thursday, as tech stocks lead the broader market lower amidst a pronounced rebound in bond yields.
Down over 1.50%, the Nasdaq is on track for its largest intraday decline since April. Year to date gains for the tech index are up over a staggering 40%......a healthy correction well overdue.
The New Zealand dollar again sits in the bottom third of the G10 leaderboard, extending its intraday losing streak to a 5th day, testing a critical level at 0.6220. Last week, this level offered stout resistance before succumbing to the NZD bulls, the Kiwi ripping higher through 64 US cents.
Often, technicians will look for old resistance to form new support to confirm the sustainability of an evolving trend, in this case NZDUSD to test 0.6220, rebound and resume another upside surge through 0.64.
Early Friday morning lows have been marked a couple of pips below 0.6410, before a modest bounce back through 0.6230.
During yesterday's local session, the Kiwi looked well placed to reclaim territory north of 63 US cents, hitching a ride higher with its trans-Tasman peer off the back of a strong Aussie employment report.
Bid from around 0.6260 to an intraday high a couple of pips below 0.6310, the Kiwi has reversed course through European and US trade, logging a peak to trough intraday decline of circa -1.50%.
Amidst a quiet economic calendar, market participants have focused on the downside miss for weekly jobless claims. The number of Americans filing for unemployment insurance fell to a 2-month low of 228K (vs 242K, expected). The four-week moving average, which removes week-to-week volatility, fell by 9,250 to 237,500.
The result is indicative of sustained labour market tightness and increases the probability the Fed will continue hiking beyond next week's widely expected 11th cycle hike.
In response the yield on the benchmark 10-year bond jumped around 10 basis points through 3.87%, in turn boosting the US dollar, which now trades higher against all its major peers expect for the Australian dollar, AUDUSD logging a marginal intraday gain.
The Aussie has fared better due to headline jobs growth more than doubling the median consensus (32.6K vs 15K expected) and an unemployment rate remaining unchanged at 3.5% after the prior month was revised down from 3.6% to 3.5%.
Market pricing was clearly favouring an on-hold decision from the RBA earlier in the week, now assigning a 50/50 split, the odds of a 25bps hike to 4.35% rising.
Shedding over three-quarters-of-a-percent, NZDAUD has pulled back over 1.50% from Monday's peak near 0.9320. Thursday's overnight low has been marked at 0.9170.
Looking to the day ahead, it's another quiet 24 hours for market moving macroeconomic data releases, UK retail sales and CPI for Japan the sole tier 1 data releases.
Will the Kiwi's downside run continue for a 6th day?
Down over +2.50% for the week, NZDUSD has covered some distance and may well find support near 62 US cents where both the 100 and 200 day moving averages reside. If these widely monitored trend following indicators fail to hold, last week's rally is nothing more than an aberration.
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Stuart Talman is Director of Sales at XE. You can contact him here.
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