Markets waiting for US Non-Farm Payroll data while the situation in the Ukraine continues to deteriorate

by Kymberly Martin

NZ Dollar

The NZD/USD sits only marginally higher this morning, at 0.8630.

The NZD/USD has traded a tight range over the past 24-hours in the absence of domestic data releases. It has attempted moves towards resistance at the 0.8640 level on several occasions, but remains at 0.8630 this morning.

There was not a great deal to report on the crosses either. Most notable was the continued uptrend in the NZD/AUD. This was despite a solid China PMI Manufacturing release that briefly buoyed the AUD. The NZD/AUD now trades around 0.9300. Resistance is seen at the 0.9310 level. A push through here would open the way for the cross to revisit the 0.9400 level.

The only domestic data scheduled today is the ANZ commodity price index. We expect this to fall as it begins to log the recent fall in dairy prices.

As the market absorbs the fact that NZ commodity prices and terms of trade have likely peaked, it should contribute to a softer NZD/USD that we expect to unfold in 2H.

But for now, the fate of the NZD is largely in the hands of the April US payrolls report to be released late tonight (NZT). Consensus expects a 218k outcome up from 192k last month. This would confirm earlier weakness in US labour market data was largely the result of severe winter weather.

With the USD index and US 10-year Treasury yields close to the bottom or recent ranges, it would not appear the market is positioned for a very strong result. A solid result could therefore see a relief bounce in the USD/Treasury yields, initially seeing the NZD/USD lower.

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Majors

Currencies have traded tight ranges as the market remains in limbo ahead of tonight’s US payrolls data. The USD index sits at 79.50.

Overnight, equity markets traded without much of a pulse. Both the Euro Stoxx 50 and the S&P500 are virtually flat. Our global risk appetite index (scale 0-100%) remains at a solid 71%.

Behind the scenes the situation in Ukraine continues to deteriorate. According to the IMF, the easternmost regions of Ukraine are slipping from the government’s control.

However, the market’s eyes are clearly focused on tonight’s US payrolls data. As a consequence the USD index virtually flat-lined around 79.50 over the past 24-hours. This was despite a considerable rally in US Treasuries, after the release of the US ISM, that showed a soft prices paid component.

The GBP showed a brief sharp response to the release of the UK Manufacturing PMI last night. It rose to 57.3 (55.4 expected). The GBP/USD gapped toward 1.6920 on the release but later returned to trade at 1.6890. Still, the GBP was one of the stronger performers on the night.

The AUD is slightly weaker this morning. The AUD/USD nudged a little higher yesterday afternoon after the release of the China Manufacturing PMI (50.4 vs. 50.5 expected). Although largely in line with consensus expectation the market appeared relieved the index remained in expansion i.e. above 50. However, after touching intra-night highs above 0.9310 the AUD/USD has subsided to trade at 0.9270 this morning.

Tonight the final reading of the April Markit Eurozone Manufacturing PMI will be released. The Eurozone unemployment rate for March will also be released. Consensus expects this to remain elevated at 11.9%. But the main attraction tonight will be the release of US payrolls data.

All its research is available here.