Kiwi returns below 0.5600 as New Zealand prepares to vote on Saturday

• Having climbed above 0.5650 on Thursday, NZD/USD has retreated below 0.5600.
• Markets put the probability of a December RBNZ rate rise below 50%, while the dollar has recovered from its post-midterm low.
• Neither of New Zealand's main parties is heading for a majority ahead of Saturday's election.

After Thursday's rise above 0.5650, NZD/USD has slipped to a session low just below 0.5600, reversing all of Wednesday's gains from the pair's lowest level since 14 October. As New Zealand heads to the polls on Saturday, the Kiwi is back at the level seen before the US midterm results sent the dollar to a one-month low.

Following third-quarter employment data, market pricing for a December rate rise has dropped below 50%, compared with nearly 75% at the start of the week. The Reserve Bank of New Zealand (RBNZ) voted four to three on 28 October to leave its rate at 2.75%, signalling that tighter policy was likely but giving no timetable. In the final Freshwater poll, Labour stood at 30.7% and Prime Minister Luxon's National at 26.4%; the Opportunity party, on 5.1%, held the balance.

US initial jobless claims came in at 189K, below the 196K forecast, while third-quarter productivity increased by 3.6%, exceeding expectations of 2.5%. Thursday's releases helped the dollar recover some of Wednesday's decline to a one-month low after the Democrats took Congress. Markets assign a probability of close to 70% to a Fed rate rise on 9 December. Whether or not that increase materialises, the Fed's 3.75%-4.00% rate remains above the RBNZ's 2.75%.

Election and economic releases set the agenda

The first event is Saturday's election. China then releases its October Consumer Price Index (CPI) at 01:30 GMT on Monday, following annual inflation of 0.9%. Its trade data follow at 03:00 GMT on Tuesday, after export growth of 36.3%. Due at 21:30 GMT on Thursday, 12 November, New Zealand's October manufacturing Purchasing Managers Index (PMI) follows a reading of 56.5. The RBNZ's next policy decision will accompany its December Monetary Policy Statement.

October Nonfarm Payrolls (NFP), due on Friday at 13:30 GMT, are expected to show 65K after 29K. October CPI follows on Tuesday, 10 November, with a forecast of 0.3%, down from 0.6%. Both releases will inform the Fed's 8-9 December meeting, with US interest rates the higher of the two currencies' rates.

NZD/USD retraces most of its October advance

Roughly four-fifths of the advance from the 14 October low near 0.5550 to the 22 October high near 0.5700 has now been erased. Since the RBNZ left rates unchanged, NZD/USD has traded below its 50-day Exponential Moving Average (EMA), which sits just beneath 0.5700. The 200-day EMA lies just below 0.5800, while daily momentum has been declining from overbought territory since late October.

Daily NZD/USD chart