The focus for Friday’s trading session was the US employment report. The increase in non-farm payrolls in June of +287k was stronger than the market expected, indicating a recovery after a couple of very soft months.
But other details of the report were soft, including downward revisions to jobs growth over previous months, a higher unemployment rate, and lower than expected wage inflation. This was seen as a goldilocks report, strong enough to suggest that the economy wasn’t falling into a hole but weak enough to suggest that the Fed wouldn’t be tightening anytime soon.
The data set off a rally in risk assets and commodity currencies, while the market saw no reason to take the USD higher. The S&P500 ended up 1.5%, closing a shade under its all-time high, Europe’s Stoxx 600 index rose by 1.6% and the ‘fear index’ or VIX fell to 13.2, close to its low for the year.
The NZD closed the week at 0.7306, within a pip of its high for the day, and a 14-month high. During local trading hours, the currency pushed higher as the market continued to digest the RBNZ’s housing market speech on Thursday night, which some interpreted as reducing the chance of further OCR cuts. Ironically, the TWI closed the week above the 78 mark which actually increases the chance of further easing. The recent push higher has been driven more by portfolio flows than fundamental factors, which suggests a much weaker inflation outlook.
The AUD also pushed higher, closing the week at 0.7569, with the odds increasing of the current government being retained as further election results flowed in, and as risk appetite increased. Over the weekend, the Opposition leader conceded defeat. NZD/AUD met some resistance just below the 0.97 handle and closed the week around 0.9650.
In the aftermath of the US employment report, USD/JPY reached a low of 100.00, before closing at 100.54. Over the weekend, PM Abe’s party won a convincing victory in an upper house election. In a TV interview after the result he commented “I think this means I am being told to accelerate Abenomics, so I want to respond to the expectations of the people”.
GBP appears to have found a base for now and eked out a modest gain on Friday, closing the week at 1.2954. EUR ended the week down a touch at 1.1051.
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