• NZD/USD remains firm despite strong US yields and USD.
• Fed is the highlight of the week, domestically, NZ jobs on the radar. 

NZD/USD refused to give up the ghost for Halloween trading at the start of the week despite firm US yields, poor Chinese data and sinking stocks on Wall Street. The bird remains underpinned by a hawkish stance at the Reserve Bank of New Zealand.

It was a mixed start to the week on Wall Street, with the high betas, such as the kiwi, initially under pressure before stocks tried to correct, supporting the antipodeans. NZD/USD fell to a low of 0.5774 before recovering to a high of 0.5820 in New York, back into London shorts. This occurred at the same time the cash market S&P 500 closed the opening gap, despite further disappointing US data while investors assessed the possibility of the Federal Reserve signalling this week a slowdown in the pace of interest-rate hikes from December. US Chicago PMI for October arrived at  45.2 vs. the estimated 47.0 vs. the previous 45.7.

Meanwhile, the key events come in this week’s FOMC announcement, mid-term elections and October labour market report. However, markets may still be optimistic about a Fed ‘pivot’, so the communications from the Fed's chair, Jerome Powell, will remain the main focus for the week. ''We look for the FOMC to deliver a fourth consecutive 75bp rate hike next week,'' analysts at TD Securities explained. ''The decision will bring policy to a level at which we think the FOMC will be more comfortable in shifting to a steadier hiking pace. The exact timing of the downshift, however, will highly depend on the Consumer Price Index data before the Dec meeting. Powell might offer hints of this in the post-meeting presser.''

NZ jobs market in focus

For the domestic week ahead, third-quarter data should confirm that the labour market remained exceptionally tight in the September quarter, as analysts at ANZ Bank explained.

''Data volatility means it’s highly uncertain where unemployment will actually land (we’ve pencilled in a 0.2ppt drop to 3.1%), but the overall release is expected to confirm that the inflationary chasm between labour demand and supply in New Zealand continues.''

''Wage growth is likely to accelerate again, with private sector average hourly earnings picked to rise 2.3% q/q (8.2% YoY), comfortably exceeding annual inflation of 7.2%. Productivity-adjusted private sector labour costs, meanwhile, are forecast to have lifted 3.9% YoY. Both measures of annual wage growth are expected to see their strongest prints on record (albeit in data only going back to the 1990s).''

The ''data may not shift the dial for the November MPS (where a 75bp hike is widely expected after last week’s shock CPI print), especially given that the RBNZ in August was expecting an even faster rise in wages than we are now. But a stronger-than-expected set of data could firm up expectations for another 75bp hike in February (ie our forecast).''