Weaker jobs growth in the US a sign of things to come?

By Sam Coxhead*:

Overall the price action in the foreign exchange market was again directionless last week.

The staggering nature of the wider economic recovery sees any positive economic data come in fits and starts.

European debt concerns have seen further downward pressure on banking stocks globally, and this spread through to the wider equity markets.

Lower equity markets saw the New Zealand and Australian dollars under periods of pressure throughout the week, but the weak US employment report on Friday saw the US dollar give back ground.

The big question is whether or not the lower than expected jobs growth in the US is sign of things to come, or just part of the staggering progression toward a more normal labour market.

One thing is certain, the world needs a positive outlook in the United States, given the apparent stronger headwinds in other regions.

Major Announcements last week:

·  UK Manufacturing PMI 52.1 vs 50.6 expected

·  European Unemployment 10.8% vs 10.7% expected

·  US Manufacturing PMI53.4 vs 53.3 expected

·  RBA leave monetary policy unchanged

·  UK Construction PMI 56.7 vs 53.6 expected

·  UK Services PMI 55.3 vs 53.5 expected

·  ECB leaves monetary policy unchanged

·  BOE leaves monetary policy unchanged

·  Canadian Unemployment rate 7.2% vs 7.5% expected

·  US Unemployment rate 8.2% vs 8.3% expected(but jobs market contracted)

·  Chinese Inflation 3.6% vs 3.3% expected

·  BOJ leaves monetary policy unchanged

NZD/USD 

Last week this pairing had almost exactly the same range as the week previous. This highlights the choppy trendless price action of the current environment. This type of price action is likely to continue in the short term. Aside from the NZIER Quarterly Survey Of business Opinion on Wednesday, the lead will come from the US economic data and the wider equity market sentiment. The US inflation and consumer sentiment numbers on Friday will be the focus. The market will remain choppy and prone to quick sentiment changes in the meantime., and likely the .8100/.8300 recent range will contain the price action.

NZD/AUD (AUD/NZD)

The NZD has continued to grind higher against the AUD. Since breaking through the .7830 (1.2770) level, this was to be expected to some extent. The way was made easier by the clear message from the RBA that it is very likely they will cut the cash rate in May. The new range of .7830/.8000(1.2500/12770) should cover things for the coming weeks. The NZ situation remains the same, the RBNZ are unlikely to make any moves in 2012 at this stage, so moves for this pair will predominantly come from sentiment towards the RBA..

NZD/GBP (GBP/NZD)

This pairing remains in its now familiar range its has been in for almost two months. The positive UK data kept the NZ dollar under control for the most part last week. The NZD saw periods of demand that were hard to pin down considering there was little in the way of economic data in New Zealand. This week will likely see further trading within the recent .5000/.5200 (19.230/2.000) range, with little data of real significance in the UK either. Dips below .5100 (above 1.9610) seem to draw out NZD demand, and provides an ongoing  initial level of NZ dollar support.

 NZD/CAD

The NZD dollar saw some periods of pressure from the CAD last week. The largest drop came on the back of the positive Canadian data early Friday. Unfortunately the pressure was not to last as the weaker than expected US employment data saw the NZD outperform as the chances of near term QE initiatives in the US increased. The pair remains in its wider .8050/.8250 range and this should contain the price action for the remainder of the week. The NZIER business sentiment survey in NZ on Wednesday will be closely watched, as will the Canadian trade balance on Thursday.

NZD/EURO (EURO/NZD)

The NZD saw grinding appreciation over the EURO throughout the course of last week. Record European unemployment numbers set the scene early, and from there the increased focus on the peripheral member debt markets kept the market on its toes. Political instability around various upcoming elections may also be adding to the lowered EURO demand. This week should see further ground for the NZ dollar more hard fought if it approaches the extremes of the recent range at .6300 (1.5875). The economic data should be of limited impact with the most likely leads coming from the wider equity market sentiment,  and general appetite for peripheral Euro-zone member debt.

 NZD/YEN

This pair has been behaving particularly well over the last couple of weeks, having bounced off support at 66.50 each time the market saw any YEN strength. The BOJ announcement of unchanged monetary policy could see further testing of this level in the coming days. If this YEN positive stance is coupled with disappointing earnings results on US stock markets, sentiment could lead to a weaker NZ dollar. The domestic focus for the remainder of the week will be the NZIER business sentiment survey on Wednesday.

AUD/USD

The AUS remained under pressure from the US dollar for the most part throughout last week. The RBA monetary policy meeting minutes point towards an easing in the cash rate in the near future, and most likely in May. This should undermine any significant appreciation of the AUD in the short term. Countering this was the weaker than expected US employment numbers on Friday. This points towards further range trading for this pair (and others) in the short term. Australian employment numbers on Thursday come ahead of US inflation and consumer sentiment numbers, but all three pieces of data will be very closely watched.

AUD/GBP (GBP/AUD)                            

This pairing has continued to trade in a relatively tight range. It is surprising given the relatively strong GBP numbers last week and the tone of the RBA monetary policy meeting minutes. The support at .6450 (resistance 1.5500) remains in place for the time being, but could get tested if the Australian employment numbers disappoint on Thursday. There is little in the way of economic data in the UK to get excited about, so expect the recent range to hold ahead of the employment numbers.

 AUD/EURO (EURO/AUD)

The EURO saw renewed pressure from the AUD last week and was not able to hold the crucial level .7830 (1.2770). The move was led by EURO weakness, as opposed to any outright AUD strength. Political instability and increased concerns about Spain’s debt funding ability were the main drivers. This week will see the focus remain on the Euro-zone debt markets, especially ahead of the Australian employment numbers on Thursday.

 AUD/YEN

The YEN saw a distinct resurgence in demand over the AUD throughout the course of last week. The prospect of a lower RBA cash rate in May, coupled with weak US employment numbers and heaving stock markets led the decline. The BOJ’s decision today to not offer further monetary easing in Japan has further buoyed the YEN. The focus from the currents levels now becomes the Australian employment numbers on Thursday. Expect further ground from the YEN to be harder fought from current levels, especially if speculation of near term monetary easing from the BOJ gains momentum.