NZD Falls on GDP Data, Australian Dollar Braces for Key Jobs Report

Zealand Dollar, Australia Employment Change, NZ GDP Data – TALKING POINTS

• New Zealand Dollar spiked lower after local gross domestic product (GDP) data underwhelmed

• Australian Dollar nervously eyeing local jobs data – selling pressure could swell on poor outcome

• AUD/JPY technical outlook bearish after being rejected at key resistance – will pair retest support？

Wall Street trade ended on a somewhat gloomy note, with the Dow Jones and S&P 500 down 0.65 and 0.36 percent, respectively. The tech-leaning Nasdaq index was up for the day, but only managed to register a meager 0.15 percent gain. Foreign exchange markets were somewhat of a mixed bag with the petroleum-linked Norwegian Krone as the sessions winner, while CAD, GBP and EUR were the biggest losers.

Federal Reserve Chairman Jerome Powell engaged in another congressional testimony, though this time it was in front of the House Financial Services Committee. He warned that the road back to normal economic activity will take time and reiterated that the Fed is not thinking about raising interest rates. Having said that, the Chairman also stressed the reluctance of the central bank to employ negative interest rates.

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In terms of financial stability, Mr. Powell said that situation with collateralized loan obligations (CLOs) is very different from the mortgage-backed securities (MBS) during the 2008 crisis. Having said that, the trends in corporate credit markets are somewhat concerning despite early signs of an economic recovery in the United States.

In order to maintain stability in key credit markets, the Fed said it will keep its “foot on the gas” until the country is through the worst of the coronavirus pandemic. He said he expects to see strong job creation through July and hinted that more action now will yield a strong recovery later. Stopping short of directly involving himself in the political sphere, Mr. Powell expressed concern about Congress withdrawing support too quickly.

Thursdays Asia-Pacific Trading Session

The risk-off tilt during Wall Street trade could ooze into Asia and pressure US equity futures with APAC stocks. The anti-risk Japanese Yen and US Dollar may get a tailwind from souring sentiment, particularly versus the Australian Dollar if local jobs data spoils appetite for the commodity-linked AUD. Regional credit markets may see spreads of credit default swaps widen and potentially push USD and JPY higher.

AUD/JPY Analysis

AUD/JPY has enjoyed a nice ride from the multi-year bottom in March, though its capitulation under a key resistance range between 76.320 and 75.925 paints a gloomy picture. The bearish brush may press a darker shade if AUD/JPY attempt to crack the multi-layered ceiling again with no avail. Upcoming economic data may cause the pair to retreat closer to a familiar stalling point at 71.894.