US employment data better-than-expected; no signs of Greek stand-off ending any time soon; China eases monetary policy

By Ian Dobbs*:

Friday’s US employment data was strong in every facet. The headline number was better than forecast, there were positive revisions to prior numbers, and average hourly wages increased. This has served to reinforce expectations for an interest rate hike from the Fed in June, but it’s looking increasingly likely they will be the only country to hike rates this year.

Most other central banks are either very neutral or have recently cut.

The Peoples Bank of China are the latest to ease policy after they took action at the end of last week. They were however quick to add that this is not the start of strong stimulus.

The standoff with Greece’s new government re their debt pile and bailout conditions has shown no signs of easing and this week could prove to be key. The market will want to see some work towards a solution at Wednesdays Eurogroup meetings and a failure to do so should increase pressure on the Euro.

Major Announcements last week:

• RBA cut rates 0.25% to 2.25%

• UK Construction PMI 59.1 vs 56.9 expected

• Fonterra Global Dairy Auction +9.4%

• NZ Employment +1.2% vs +0.8% expected

• UK Services PMI 57.2 vs 56.6 expected

• Canadian Ivey PMI 45.4 vs 53.8 expected

• Australia Retail Sales +0.2% vs +0.3% expected

• Bank of England leaves rates unchanged

• Canadian Employment +35.4k vs +4.7k expected

• US non-farm payrolls 257k vs 230k expected

NZD/USD

NZD/AUD (AUD/NZD)

This pair performed well last week driven higher by the RBA’s decision to cut rates and strong employment data from New Zealand. Resistance around 0.9500 (support around 1.0526) has managed to cap the move for the time being, but I expect that level to come under increasing pressure. Minor support around 0.9400 (resistance around 1.0638) should contain the downside in the very near term with direction this week likely to be driven by Australian releases. Today we will hear from RBA Governor Stevens with an on the record speech set for release, then later in the week we get business confidence, consumer sentiment, inflation expectations and employment change. From NZ we only have the Business NZ Manufacturing Index set for release on Thursday.

NZD/GBP (GBP/NZD)

The past week has seen little overall direction for this pair with the current price of 0.4825 (2.0725) almost identical to where it was trading this time last Monday. We have however seen a healthy range over the past week and further volatility is expected in the near term. A range of 0.4750 to 0.4900 (2.1053 to 2.0408) may well continue to contain the pair with direction largely led from offshore releases. Tomorrow sees UK manufacturing production data hit the wires, then on Thursday we have the Bank of England inflation report and a speech from Governor Carney to digest. From NZ we only have the Business NZ Manufacturing Index set for release on Thursday.

 NZD/CAD

Volatile sideways trading with little overall direction has been a key feature of this pair for the past four weeks. Mixed data from Canada last week only served to reinforce the current choppy conditions and there is little to suggest the coming week will be any different. From New Zealand we only have the Business NZ Manufacturing Index set for release on Thursday. While from Canada we have the new house price index and manufacturing sales data, both due out toward the end of the week. Resistance around 0.9300 provides the immediate topside barrier, while on the downside any dips below 0.9100 will attract buying interest.

NZD/EURO (EURO/NZD)

This pair put in a solid bounce off recent lows mid last week helped by solid employment data out of New Zealand and a gain in dairy prices. Some tentatively encouraging data from Europe recently has had little impact on the Euro as the market is more focused on the Greek / Troika stand-off. This week could prove key in those negotiations with the chance for some middle ground to be met during the Eurogroup meetings on Wednesday. If both sides remain polarised after talks this week we could easily start to see the Euro react negatively. This suggests further upside in the NZDEUR pair is a very real risk and a break above 0.6520 (below 1.5337) would signal that the next up move is under way. European developments will remain in focus with only the Business NZ Manufacturing Index set for release from New Zealand on Thursday.

 NZD/YEN

This pair recovered sharply from recent lows around 84.00 last week and tested resistance around 88.00 in the wake of Friday’s US employment data. That level has so far contained the topside but I wouldn’t be surprised to see further attempts to break higher. Any move up through 88.00 will target the 90.00 level. Today from Japan we have current account and consumer confidence data, then later in the week we get tertiary industry activity and core machinery orders. From NZ this week we only have the Business NZ Manufacturing Index set for release on Thursday.

AUD/USD

The Australian dollar staged a strong recovery from recent lows in the second half of last week, thanks in part to big squeeze of US dollar positions. This saw the AUD trade up to resistance around 0.7860 before running out of steam. The pair was testing that level again on Friday night just ahead of key US employment data, but that positive employment result quickly turned the market around and forced the AUD back down under 0.7800. Risks in the near term are now focused on the downside again with buyers of US dollars encouraged by the very healthy employment picture. There are plenty of local releases to draw attention this week with a speech from RBA Governor Stevens today followed over the coming days by business confidence, consumer sentiment, inflation expectations and employment change. From the US the focus turns to retail sales and consumer sentiment data out on Thursday and Friday respectively.

AUD/GBP (GBP/AUD)                            

This pair has remained under pressure even since last week’s interest rate cut from the Reserve Bank of Australia. Support toward 0.5070 (resistance toward 1.9724) has been tested on a number of occasions but has so far contained the weakness. This keeps alive the chance of a bounce toward resistance around 0.5200 (support around 1.9231). If however 0.5070 (1.9724) does give way the next target will be a test of support at 0.4930 (resistance 2.0284). There are plenty of local releases to draw attention this week with a speech from RBA Governor Stevens today followed over the coming days by business confidence, consumer sentiment, inflation expectations and employment change. While from the UK we have manufacturing production, the Bank of England inflation report and a speech from Governor Carney to digest.

AUD/EURO (EURO/AUD)

This pair has recovered almost all the losses seen in the immediate aftermath of last week’s RBA interest rate cut. Pressure on the Euro is mounting as there has been little sign of progress in negotiations with the new Greek government, and this week’s Eurogroup meetings could well be critical in that regard. A failure to see both sides come closer together will likely translate into increased EUR selling. For the time being resistance around 0.6900 (support around 1.4493) is capping the topside for the pair, with any break above there targeting a move toward 0.6960 (1.4368) and potentially back up over 0.7000 (under 1.4286). There are also plenty of local releases to draw attention this week with a speech from RBA Governor Stevens today followed over the coming days by business confidence, consumer sentiment, inflation expectations and employment change.

AUD/YEN

After trading down to 89.42 in the wake of last week’s interest rate cut from the RBA, this pair has put in a sustained bounce. The latest leg higher came on Friday night after US employment data hit the wires with the Australian dollar briefly trading over 93.00 Yen. The pair could trade as high as 94.00 without threatening the broader down trend that has been in play since November last year. Selling ahead of 94.00 is therefore recommended for those looking to purchase Yen. There are plenty of local releases to draw attention this week with a speech from RBA Governor Stevens today followed over the coming days by business confidence, consumer sentiment, inflation expectations and employment change. From Japan we have current account and consumer confidence data today, then later in the week we get tertiary industry activity and core machinery orders.

AUD/CAD

With both the Australian dollar and the Canadian dollar seeing periods of pressure over the past few weeks, trading in this pair has been a volatile affair. The RBA’s decision last week to match the Bank of Canada’s recent rate cut saw the cross trade to just under 0.9600. The Australian dollar managed to recover from those lows and trade up toward 0.9800 before Friday’s better than forecast Canadian employment data boosted demand for the CAD. A range of 0.9600 to 0.9800 may well contain trading this week with the focus now on a number of local releases. We have a speech from RBA Governor Stevens today followed over the coming days by business confidence, consumer sentiment, inflation expectations and employment change. While from Canada we have the new house price index and manufacturing sales data, both due out toward the end of the week.

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