By Stuart Talman, XE currency strategist
Softer-than-expected ADP Employment Change data has followed Tuesday's JOLTS Job Openings downside miss, providing additional evidence the US labour market is continuing to cool under the weight of higher borrowing costs.
A busy week of labour market data for the world's largest economy culminates with Friday's Bureau of Labor Statistics (BLS) employment report, consensus estimates projecting jobs growth (NFP) of 187K and the unemployment rate remaining unchanged at 3.9%.
The soft ADP and JOLTS data has raised expectations for a soft NFP number, to be released in the early hours of Friday morning.
Should the BLS data also print below consensus, the market's notable recent dovish repricing, calling for ~140bps of 2024 Fed rate cuts, will be validated. Conversely, non-farm payrolls printing closer to 200K, or above would add weight to the argument that rates markets have overstepped the mark.
US treasury yields continue to track lower, in turn the dollar's downside bias prevails. Following a bounce through Tuesday, the dollar has failed to extend its rebound, although net moves against most majors have been modest.
Along with the Swedish krona, the New Zealand and Australian dollars occupy the top three positions on the G10 leaderboard, the antipodeans bid throughout the Asian afternoon as Chinese authorities took steps to defend the yuan following an outlook downgrade from Moody's Investor Services on Tuesday.
Citing rising debt levels due to the recent increase in fiscal spending in addition to the perilous state of the property sector, the rating agency lowered the outlook on China's A1 debt rating from stable to negative. S&P and Fitch the other major global ratings agencies both maintain A+ ratings for China's sovereign debt.
In response, Beijing defended the yuan by setting a strong daily CNY fixing rate - the gap between the fix and the daily average estimate the largest in over two weeks. Although this is not remarkable given notable gaps have been common practice in recent months. China's state-owned banks also stepped-up dollar selling operations following the downgrade.
In turn, the New Zealand dollar was bid through local trade, climbing from below 0.6130 to mark intraday highs a few pips shy of 0.6180 during the early stages of European trade.
NZD buying momentum has stalled through overnight trade, NZDUSD retracing to mostly trade between 0.6140 and 0.6165 through the US session.
The pair looks to have entered into a holding pattern ahead of Friday's BLS data, upside capped below 62 US cents whilst support in the 0.6120's has capped the downside over the past 48 hours.
In other news from Wednesday, economic growth across the Tasman has declined to its slowest pace in 12 months, the Australian economy advancing 0.2% (vs 0.4%, expected) in the September quarter. The data is inconsequential for RBA policy considerations given its somewhat dated. The RBA's February interest rate decision will likely hinge on the outcome of 4Q CPI, released 31 January.
Logging an intraday gain of around one-third-of-a-percent, NZDAUD climbed to within a pip of 0.9380, the pair up ~1.70% since last week's RNZ hawkish hold. The October swing high near 0.9410 approaches as the next key topside hurdle for NZD bulls to clear.
Looking to the day ahead, trade balance data for the Chinese and Australian economies is released. Offshore, the updated reading of 3Q eurozone GDP and weekly jobless claims for the US labour market will garner attention.
Markets may slip into wait-and-see mode ahead of the US jobs numbers….we look for the Kiwi to range trade between 0.6120 and 0.6180.
Stuart Talman is Director of Sales at XE. You can contact him here.
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