US Dollar gains ahead of Nonfarm Payrolls weigh on New Zealand Dollar

• US Nonfarm Payrolls loom as caution pushes NZD/USD lower.
• Broader USD advances are limited by lower US bond yields, falling oil prices and expectations of a Democratic sweep.
• Weak domestic jobs figures and uncertainty ahead of the election leave the New Zealand Dollar under pressure.

With the US Nonfarm Payrolls (NFP) report approaching, investors are awaiting figures expected to be pivotal to expectations for the Federal Reserve's December policy decision. Caution across markets is supporting the US Dollar (USD), leaving NZD/USD lower for a second consecutive day. The pair is trading near 0.5560 in Friday's European session.

CME’s FedWatch tool currently puts the probability of a December Fed rate hike at over 64%. Even so, falling US bond yields, partly reflecting a Democratic sweep in the US elections, could curb further gains in the US currency. That political outcome has fuelled speculation that the Iran war could end, pushing oil prices down. It has also strengthened expectations of political gridlock in Washington, which could constrain government spending and dampen economic growth.

Domestic economic weakness and political uncertainty are also weighing on the New Zealand Dollar (NZD). Figures published earlier this week by Statistics New Zealand showed unemployment reaching 5.7% in the three months to September, its highest rate in nearly 11 years. That compares with 5.6% in the preceding quarter and a market forecast of 5.5%.

Further pressure on the NZD comes as investors turn their attention to New Zealand's general election on Saturday, 7 November. The centre-right coalition led by Christopher Luxon's National Party is under growing pressure to put forward policies that stimulate economic growth and ease cost-of-living pressures. Recent IPSOS polling underlines the importance of those issues, identifying inflation and living costs as voters' foremost concerns ahead of the election.

US payrolls leave markets watchful after an eventful week

With the latest US payroll figures in focus, Commerzbank cautions that “anyone hoping for a quiet trading session on Friday after this eventful week is likely to be disappointed,” highlighting the prospect of another busy session. According to the bank, the figures “are one of the most important pieces of economic data and usually provide an indication of the Fed’s future monetary policy,” leaving investors watchful for labour-market signals that could influence expectations for the next policy decisions.