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Soft data across the globe: Aussie jobs, UK & Japan GDP & US retail sales all miss. Strong US CPI report fading from memory, US dollar gives up gains

Currencies / analysis
Soft data across the globe: Aussie jobs, UK & Japan GDP & US retail sales all miss. Strong US CPI report fading from memory, US dollar gives up gains
NZD USD balance
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By Stuart Talman, XE currency strategist

Ugly macroeconomic data has been the story from Thursday's sessions, a busy economic calendar delivering a flurry of softer-than-expected tier 1 activity reads.

Jobs numbers across the Tasman were gloomy, following on from last month's notable softness whilst 4Q GDP prints for Japan and the UK unexpectedly fell into contractionary territory for the second straight quarter, meeting the technical definition of recession.

Retail sales in the US were expected to decline, but nowhere near the magnitude reported (-0.8% vs -0.1%, expected), marking the largest decrease since March, last year. Industrial production also missed the mark (-0.1% vs +0.3%, expected), although this does follow the recent upside beat for the ISM Manufacturing PMI.

The net result - the dollar continues to hand back its CPI induced gains, Tuesday's hot inflation numbers seemingly forgotten as US treasury yields pullback from recent swing highs.

The 12 June FOMC meeting, according to Fed funds futures pricing now presents as the most likely month for the Fed to commence cutting the target rate.

Having located support around 0.6050 following the CPI downdraught, the New Zealand dollar consolidated its recovery through yesterday's local session range trading mostly between 0.6070 and 0.6090.

Catching a bid ahead of the commencement of US trade, NZDUSD reclaimed territory north of 61 US cents, to then spike higher following the retail sales release. Marking intraday highs a few pips shy of 0.6130, the Kiwi has pared gains heading into the New York afternoon, pulling back to 0.6100. 

Over the past 22 trading days, the New Zealand dollar's low has been marked a couple of pips below 0.6040 whilst its apex is located a few pips through 0.6170.

Directionless, choppy trade now the state of play.

A recent run of stronger than expected domestic data in addition to simmering RBNZ hawkishness have contributed to halting the Kiwi's descent from the 28 December swing high, near 0.6370.

On the other side of the equation, strong US macro data (today's data bucking that trend), and the market delaying the expected timing of Fed cuts, has fuelled USD outperformance through the first 6 weeks of 2024, capping NZDUSD upside.

For the Kiwi to mount a sustained run higher by first decisively trading through 62 US cents, a notable cooling of the US economy must be observed. The US labour market remains too tight to return inflation to the Fed's 2% target.

Australia's labour market does appear to be materially cooling, yesterday's jobs numbers reporting that only 500 new jobs were created in January (vs +30K, expected), the marginal gain following on from December's horrendous result of almost -63K jobs lost. The unemployment rate climbed from 3.9% to 4.1%, the first time the jobless rate has exceeded 4% in two years.

Although weaker numbers through December and January come as no surprise given this period more than any other is exposed to seasonal factors. That being said, the overarching theme for the Australian labour market is apparent softness following a period of historically tight conditions.

The implication for RBA monetary policy expectations?

Market pricing shifting to assign a greater implied probability to the RBA commencing tightening in September. Prior to the jobs numbers, November was the first month that fully priced in a quarter point cut.

Against the Aussie, the Kiwi added ~20pips immediately following the release, climbing from the 0.9360's into the 0.9380's, but ultimately failed to maintain upside momentum.

Having smashed through key resistance at 0.9350 early last week, NZDAUD ripped higher through the back end of the week to reach a 10 month high through 0.9440. With momentum indicators having climbed into technical overbought territory and Monday's swift rejection of 0.9400, there are signs of topside exhaustion.

We suspect a 0.9440/70 resistance zone will hold.

Turning our attention to the day ahead, RBNZ Governor Orr is currently delivering a speech to the New Zealand Economics Forum at Waikato University. This morning also sees the release of the Business NZ Performance of Manufacturing Index (PMI). January will mark the 11th consecutive month of a sub-50.0/contractionary reading.

A busy week of UK data concludes with retail sales, whilst in the US, PPI and Michigan Consumer Sentiment will be the key data releases in focus.

What looked to be an ugly week for the Kiwi is now looking much brighter, at current levels (circa 0.6110) NZDUSD logs a week-on-week gain of around two-tenths of a percent having been down over three-quarters-of-a-percent at Wednesday morning's nadir.

Stuart Talman is Director of Sales at XE. You can contact him here

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