NZD/USD retreats from YTD highs ahead of US Nonfarm Payrolls report

• NZD/USD retreats from eight-month highs of 0.6121.
• The US Nonfarm Payrolls report will be released on Thursday, with forecasts indicating that 110,000 new jobs were added in June.
• The Kiwi remains vulnerable to changes in interest rate expectations and risk sentiment.

The New Zealand Dollar (NZD) is trading lower against the US Dollar (USD) on Wednesday as markets look ahead to Thursday's US Nonfarm Payrolls (NFP) report.

The NFP data is expected to show that 110K new jobs were added in June, down from 139K in the previous month. The report is highly anticipated, especially after Wednesday's ADP Employment Change report, which came in well below expectations with a net loss of 33K jobs.

While the Federal Reserve (Fed) has remained committed to keeping interest rates at higher levels while it monitors the evolution of inflation, the Reserve Bank of New Zealand (RBNZ) has raised concerns about weakening economic conditions.

To stimulate the economy, the RBNZ has reduced interest rates, with the latest cut driving the benchmark rate to 3.25% in June.

Meanwhile, the Fed has kept interest rates within the 4.25% to 4.50% range. 

However, after Wednesday's Automatic Data Processing (ADP) report revealed that the employment situation in the US private sector continues to deteriorate. The June report revealed a 33,000 decline, missing analyst expectations for a 95,000 increase by a large margin.

So far, Fed Chair Jerome Powell has adhered to the cautious script, but investors are aware that this could shift quickly if the data dictates otherwise.

Speaking at the European Central Bank (ECB) forum on Tuesday, Powell stated that "It's going to depend on the data, and we are going meeting by meeting. I wouldn't take any meeting off the table or put it directly on the table. It's going to depend on how the data evolves."

These comments suggest that the outcome of the June Nonfarm Payrolls could set the tone for the upcoming Fed interest rate decision.

NZD/USD edges lower after reaching a fresh YTD high near 0.6121 on Tuesday

At the time of writing, the NZD/USD pair is trading below the psychological resistance level of 0.6100, with Tuesday's high providing additional resistance at 0.6121.

The inability of bulls to gain traction above 0.6100 indicates that they may be running out of steam.

This narrative is further reinforced by the Relative Strength Index (RSI), which is approaching the 60 mark. While a reading above 50 indicates a bullish sentiment, the RSI is pointing lower, suggesting that buying pressure is easing.

NZD/USD daily chart

If NZD/USD holds above the 20-day Simple Moving Average (SMA) support level of 0.6035 and rebounds toward 0.6121, a breakout above this recent high could pave the way for the 78.6% Fibo level of the September-April decline near 0.6188.

In contrast, a move below the 61.8% retracement at 0.6038 and a break of the 0.6000 level may open the door for a deeper retracement toward the 50% Fibo level around 0.5933.