sign up log in
Want to go ad-free? Find out how, here.

US and China supply markets with stronger data, Japan with weaker data. Currencies little changed although the Yen rises with Japan risk-off mood

Currencies
US and China supply markets with stronger data, Japan with weaker data. Currencies little changed although the Yen rises with Japan risk-off mood

By Jason Wong

An in-line US non-farm payrolls report provided no smoking gun for the market, seeing the NZD and USD ending the week on a flat note.

There were a number of data releases for the market to digest on Friday.  A weak Tankan survey in Japan, with all the key business confidence indicators falling short of expectations, set the scene for weak trading in Asia, which spilled over into the European session.  The Nikkei 225 index fell by a hefty -3.6%, and perversely led to a stronger Yen, as a risk-off mood prevailed.  The data added to expectations of further BoJ easing later this month.

A series of stronger than expected Chinese PMI indicators wasn’t enough to improve sentiment.  China’s PMI indicators showed some improvement, following easier policy measures by the PBoC and the government’s renewed commitment to support economic growth. 

Currency movements were fairly modest as the market was more focused on the US non-farm payrolls release.  However, even that was not enough to stir the market, with the data showing another “goldilocks”-like report, and broadly in line with expectations – healthy employment growth, but modest wage inflation. 

The unemployment ticked up to 5% on rising labour force participation.  All in all, the data served to impress the market with Yellen’s observations that there was probably more slack in the labour market than the headline unemployment rate suggested and the Fed’s “proceed with caution” approach to rate hikes was likely to remain.  The S&P 500 closed at its highest level for the level, against the grain of the other major markets and the VIX fell to 13.1, its low for the year. 

Supporting the move was a healthy ISM manufacturing report, which showed a move back above 50 and a supporting increase in new orders and exports.  Within the equities mix, energy stocks were weak, as oil prices fell by about 4%.  Saudi Arabia said that it would only freeze oil production if Iran and others followed suit.  We were sceptical that any production deal would occur and this statement surely reduces the chance of a deal to zero.

The USD got a temporary boost following the employment report, but the gain was not sustained and the DXY index remained approximately unchanged. 

The NZD ended the week a few ticks over 0.69 and little changed for the day as well.  Thus, the NZD remains near the top of its trading range and somewhat over-bought on our short-term model, which puts fair value closer to 0.65 – indeed the gap between actual and fair value is about as high as it has been all year.

The only other currencies worth mentioning are those at either end of the leaderboard.  USD/JPY ended down 0.8% on Friday at 111.69.  Yen strength is not what the BoJ wanted to see after moving its policy rate into negative territory, but USD/JPY currently sits close to the bottom of the trading range it has experienced over the last six weeks or so.  GBP continues to weaken on Brexit concerns, with EUR/GBP closing above the 0.80 mark, something it hasn’t done since November 2014.  The latest poll on the referendum published in the weekend showed support for the UK to leave the EU stood at 43%, above the 39% who supported to stay.  Critically, some 18% remained undecided and it is these respondents that will ultimately decide the outcome.  GBP volatility within a weakening trend is likely to remain over coming months.


Get our daily currency email by signing up here:

Email:  

Daily exchange rates

Select chart tabs

Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
Daily benchmark rate
Source: RBNZ
End of day UTC
Source: CoinDesk

BNZ Markets research is available here.

We welcome your comments below. If you are not already registered, please register to comment.

Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.