By Raiko Shareef
NZ Dollar
The NZD was thumped lower in line with the rest of the majors off the back of US employment reports on Friday.
NZD/USD fell by 1.8% to close at 0.7770.
The 0.7750 level has established itself as a decent level of support, with NZD/USD unable to find any traction below that last week.
The big figure 0.77 is likely to prove stubborn, but the technically-minded will be eyeing up 0.7684 as a major support level. That marks the 2013 low, which survived multiple tests through the middle part of that year.
On the topside, we think 0.7850 should cap rallies today.
This week presents little in the way of local, market-moving data.
Tomorrow’s QSBO will be the highlight, and we pick it to remain fairly robust.
Today’s QV house prices should not trouble the scorers.
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Majors
The USD surged higher on Friday on the back of strong headlines from the pair of US employment reports. The Bloomberg Dollar Spot Index punched 1.1% higher, its strongest one-day gain this year. Major currencies fell heavily against the USD, with high-yielding currencies like AUD and ZAR amongst the biggest losers.
US non-farm payrolls rose by 248k in September, significantly more than the 215k expected. What’s more, August’s disappointing read was revised slightly higher to 160k, from 142k originally. The unemployment rate fell to a new cyclical low of 5.9%, besting the market’s expectation for an unchanged read at 6.1%. Recall that the US Fed’s estimate of the ‘neutral’ unemployment rate is between 5.2% and 5.5%. The FOMC was not expecting to hit 5.9% unemployment until the end of 2014.
Not all smelled of roses, though. For one thing, the fall in unemployment was flattered by a decline in the labour force, where the participation rate slipped from 62.8% to 62.7%, a fresh low. Also, wage growth remains curiously subdued, with growth in average hourly earnings down from 2.1% to 2.0%, defying expectations for a climb to 2.0%.
But the market was unwilling to look much beyond the positive headlines. Outside the currency space, equities rebounded after a shaky experience mid-week. The S&P 500 was up 1.1%, while the Euro Stoxx 50 gained 0.9%.
With regard to the USD, it is worth noting that the market was running into the employment reports palpably nervous about the prospect of a soft outcome. That would likely have triggered a short-term USD correction, the likes of which were foreshadowed in last Thursday’s squeeze. The positive reports shelved that idea for another day, but we remain wary of the prospect of some consolidation in the USD.
Other US data released on Friday were simply icing on the cake. Both measures of US services PMI (Markit and ISM) beat expectations, and are consistent with GDP growth of around 4.0%. The US trade deficit was narrower than expected at $40.1b (vs $40.8b exp).
Elsewhere, euro-zone retail sales thumped analyst picks to rise 1.2% m/m in August (vs +0.1% exp). But that was offset by downgrades to business surveys, with the final reading of September’s composite PMI revised lower from 52.3 to 52.0. Sentiment on the EUR remains downbeat, with EUR/USD off by 1.2% to 1.2520, a fresh two-year low.
This week, there are fewer top-tier data releases due. Australia will be in focus, with the RBA policy statement on Tuesday and the employment report on Thursday. There are no fewer than 10 Fed speakers on podiums this week, and the ECB’s Draghi to boot.
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