• NZD/USD prints mild losses after a volatile week.
• China’s heavy military drills near Taiwan Strait propel geopolitical fears despite Easter Monday holiday.
• RBNZ’s hawkish surprise fails to push back bears amid fresh boost to Fed rate hike concerns from the US NFP.
• US/China inflation numbers, FOMC minutes will be crucial to watch for clear directions.

NZD/USD begins the trading week on a back foot as it drops to 0.6250 amid geopolitical fears emanating from China and Taiwan. Adding strength to the Kiwi pair’s downside move could be the recently firmer hawkish Fed bets. However, the Reserve Bank of New Zealand’s (RBNZ) 0.50% rate hike and cautious mood ahead of this week’s key data/events, as well as the Easter Monday holiday, put a floor under the prices.

Taiwan President Tsai Ing-wen’s US visit triggered the US-China woes as Beijing conducts strong military drills near Taiwan Strait. “China's military simulated precision strikes against Taiwan in a second day of drills around the island on Sunday, with the island's defense ministry reporting multiple air force sorties and that it was monitoring China's missile forces,” reported Reuters.

On the other hand, Friday’s upbeat US employment data renewed hawkish Fed bets. However, the market participants also expect a rate cut in late 2023 and hence pour cold water on the face of the NZD/USD bears. That said, the CME’s FedWatch Tool suggests 69% odds of the 0.25% rate hike in May, versus 55% before the US jobs report.

On Friday, the US Bureau of Labor Statistics (BLS) revealed that Nonfarm Payrolls (NFP) rose by 236K in March, the lowest since January 2021 (considering the revisions), versus 240K expected and 326K prior. Further, the Unemployment Rate eased to 3.5% versus 3.6% prior while the Labor Force Participation Rate improved to 62.6% from 62.5%. Finally, annual wage inflation, per the Average Hourly Earnings, dropped to 4.2% from 4.6%, versus market forecasts of 4.3%. 

It should be noted that the RBNZ’s hawkish surprise and the downbeat US Treasury bond yields, as well as fears of the US recession, weigh on the US Dollar and tease the Kiwi pair buyers ahead of the key catalysts.

Moving forward, the Easter Monday holiday in major markets could restrict NZD/USD moves despite the aforementioned price-negative catalysts. That said, Consumer Price Index (CPI) data from the US and China will join the latest Federal Open Market Committee (FOMC) Monetary Policy Meeting Minutes to direct short-term NZD/USD moves. It’s worth noting that any more escalation in the geopolitical fears won’t hesitate to portray the pair’s slump towards the 0.6200 round figure.

Technical analysis

NZD/USD breaks a one-month-old ascending support line, now immediate resistance around 0.6265, but the 21-DMA support of 0.6245 tests the Kiwi pair sellers.

• Gold price has recovered its opening sell-off and has scaled back above the $2,000.00 resistance.
• Rock-bottom US Unemployment Rate has recuperated expectations of a consecutive 25 bps rate hike from the Fed.
• Solidifying expectations of one more rate hike from the Fed pushed US Treasury yields higher.

Gold price (XAU/USD) witnessed an intense selling interest at open but showed a decent recovery amid the presence of responsive buyers at lower levels. The precious metal dropped firmly below the psychological support of $2,000.00 as chances for one more 25 basis points (bps) rate hike have soared significantly but have managed to recuperate losses and have scaled back above the $2,000.00 resistance. The CME Fedwatch tool shows a sudden increase in chances of a 25 bp rate hike by more than 65%.

Rock-bottom Unemployment Rate in the United States economy has recuperated expectations of a consecutive 25 bps rate hike from the Federal Reserve (Fed). The jobless rate landed at 3.5% on Friday, lower than the expectations and the former release of 3.6%. Meanwhile, the US Nonfarm Payrolls (NFP) data remained subdued as the US economy added mildly lower employment in March at 236k than the consensus of 240K.

Analysts at Wells Fargo pointed out this is the type of employee report they believe the Fed wants to see: job growth slowing in an orderly fashion, labor supply expanding, and wage growth that is edging closer to rates that are consistent with the central bank's 2% inflation target. They expected another rate hike by 25 bps in May, probably the last one.

Meanwhile, S&P500 futures have continued positive moves further, shown late Friday, on hopes that the Fed is approaching terminal rate quickly. The US Dollar Index (DXY) has shown a marginal correction but is managing to sustain above 102.00. Solidifying expectations of one more rate hike from the Fed pushed US Treasury yields higher. The yields offered on 10-year US government bonds jumped above 3.41%.

Gold technical analysis

Gold price is auctioning in a Rising Channel chart pattern on an hourly scale in which corrections are considered as buying opportunities by the market participants. The yellow metal is making efforts in keeping itself above the $2,000.00 resistance.

The 20-and 50-period Exponential Moving Averages (EMAs) are on the verge of delivering a bearish crossover of around $2,011.50.

Also, the Relative Strength Index (RSI) (14) is expected to skid below 40.00, which would result in a bearish momentum.

Gold hourly chart

• EUR/USD remains sidelined after three-week uptrend, bulls run out of steam of late.
• US employment data renew hawkish Fed bets but mixed details check Euro bulls.
• ECB remains hawkish despite cautious mood ahead of the key US data/events.
• US-China tension, US inflation and FOMC minutes will be crucial for clear directions, Easter Monday holiday to limit intraday moves.

EUR/USD seesaws around 1.0900 during a sluggish start to the key week amid Easter Holiday. Apart from the holidays, recently mixed concerns about the Federal Reserve’s (Fed) next move, as well as the European Central Bank’s (ECB) rate hike concerns also weigh on the Euro pair.

Hawkish bets on the Fed’s 0.25% rate hike increased after upbeat US employment data for March. However, the market participants also expect a rate cut in late 2023 and hence pour cold water on the face of the Fed hawks, which in turn please the EUR/USD bulls.

That said, the US Bureau of Labor Statistics (BLS) revealed that Nonfarm Payrolls (NFP) rose by 236K in March, the lowest since January 2021 (considering the revisions), versus 240K expected and 326K prior. Further, the Unemployment Rate eased to 3.5% versus 3.6% prior while the Labor Force Participation Rate improved to 62.6% from 62.5%. Finally, annual wage inflation, per the Average Hourly Earnings, dropped to 4.2% from 4.6%, versus market forecasts of 4.3%. Previously, US JOLTS Job Openings dropped to the 19-month low in February while the ADP Employment Change for March also disappointed markets with 145K figures. Further, the US ISM Services PMI for March also amplified pessimism as it dropped to 51.2 versus 54.5 expected and 55.1 prior.

The downbeat US data also propels fears of a recession in the world’s largest economy and weigh on the US Dollar, as well as fuels the EUR/USD price. As per the latest research, the Federal Reserve’s (Fed) preferred gauge of economic health backed the recession woes, via bond market clues. Reuters said, “Research from the Fed has argued that the ‘near-term forward spread’ comparing the forward rate on Treasury bills 18 months from now with the current yield on a three-month Treasury bill was the most reliable bond market signal of an imminent economic contraction.”

At home, upbeat German inflation clues and PMI data, as well as mostly firmer statistics from the Eurozone, allowed the ECB hawks to keep the reins and suggest further rate increases from the region’s central bank, which in turn propel the EUR/USD prices.

On a different page, China’s military drills near Taiwan Strait escalates US-China tension and allow the US Dollar sellers to take a breather after the US Dollar Index (DXY) posted a three-week downtrend.

While the fresh hawkish bets on the Fed and upbeat US data, as well as geopolitical woes, can pause the US Dollar weakness, the EUR/USD bears are far from the table and needs more clues to extend the upward trajectory amid the Easter Monday holidays.

Technical analysis

A 12-day-old rising wedge bearish chart formation, currently around 1.0860 and 1.1000, keeps EUR/USD bears hopeful.

US-China tension escalates after Taiwan President Tsai Ing-wen returned from a brief visit to the United States.

“China's military simulated precision strikes against Taiwan in a second day of drills around the island on Sunday, with the island's defense ministry reporting multiple air force sorties and that it was monitoring China's missile forces,” reported Reuters.

Key details

Market implications

The news should weigh on risk appetite and the AUD/USD prices amid a likely dull day due to the Easter Monday holiday in multiple markets. That said, the Aussie pair remains pressured around a two-week low, at 0.6665 by the press time of early Monday morning in Asia.

• AUD/USD is oscillating around 0.6660 as investors are still digesting the US Employment data.
• S&P500 settled the week with marginal gains as investors were anxious about US NFP data, which portrayed a quiet market mood.
• Chinese annual inflation is expected to soften to 0.1% vs. 1.0%, indicating bleak demand from households.

The AUD/USD pair continuously trading sideways around 0.6660 in the Asian session. The Aussie asset is likely to continue the lackluster performance amid an extended weekend led by Easter Monday celebrations in Australia. While investors are expected to discount sluggish United States Employment data released on Friday.

S&P500 futures settled the week with marginal gains as investors were anxious about US Nonfarm Payrolls (NFP) data, portrayed a quiet market mood. The US Dollar Index (DXY) remained sideways around 102.00 after US NFP-inspired volatility as investors are required to scrutiny the entire US employment gamut for further action.

The US economy added 236K jobs in March, marginally lower than the expectations of 240K and critical lower than the prior release of 326K. The Unemployment Rate trimmed further to 3.5% from the consensus and the former release of 3.6%. Lower additions of fresh payrolls indicate that more rate from the Federal Reserve (Fed) are restricting firms to tap advances for expansion, which is impacting the demand for labor further.

Average Hourly Earnings were trimmed to 4.2% vs. the estimates of 4.3% and the former release of 4.6%. However, on a monthly basis, the labor cost index improved to 0.3% from the prior release of 0.2% but remained in line with expectations, which indicates that higher employment bills could continue to keep inflationary pressures at elevated levels.

Going forward, Chinese Consumer Price Index (CPI) data will be the key highlight. The annual inflation data is expected to soften dramatically to 0.1% from the former release of 1.0%, which indicates bleak demand from households. This might impact the economic outlook of China as the economy is struggling to show stellar recovery despite re-opening of the economy.

It is worth noting that Australia is the leading trading partner of China and lower households demand in China would impact the Australian Dollar.