Strong employment gains and accelerating wage growth in the US saw the USD strengthen across the board on Friday night.
Only a punchy labour market report in Canada, and CAD’s subsequent appreciation, denied the USD a clean sweep against the major currencies.
NZD opens this week within a whisker of a 60 cent handle.
US non-farm payrolls grew by 280,000 in May, with net revisions to prior months adding a further 32,000. The unemployment rose unexpectedly to 5.4%, but that was almost entirely driven by people entering the labour force, with the participation rate rising to 62.9%. With wage growth now as closely scrutinised as headline employment growth, USD bulls (us among them) were encouraged by the rising pace in average hourly earnings, which is now at 2.3% y/y.
The reaction in currency markets was predictable. EUR/USD shed a cool 1.6% in short order to 1.1080 before recovering modestly to close above its 100-day moving average (1.1072). The Bloomberg Dollar Spot Index posted a 0.8% gain, but remains shy of the highs it hit early last week. We’d expect the strength of the payrolls report to support USD early this week.
NZD was one of the worst performers on Friday night, and looked set to test 0.70. NZD/USD managed to stabilise at 0.7050, but opens a little weaker this morning. We would expect decent support ahead of 0.70, though the channel support of the downtrend from October currently sits just below at 0.6985.
NZD’s underperformance continues to be driven by heavy expectations around Thursday’s RBNZ meeting. Ahead of that, FX Strategy entered a long NZD/AUD position at 0.9270, targeting 0.9610 (stop-loss at 0.9090). With the market pricing in 50 bps of cuts by December, we suspect it will a tall order for the RBNZ to meet such pessimistic expectations, given the still-robust economy. Note that CFTC data shows that speculative investors are holding the largest net short position on NZD in the series’ history, by some margin.
The US data calendar is lighter this week, with the NFIB (Tue) and the UoM consumer confidence surveys (Fri) the only top-tier releases. Elsewhere, a swathe of Chinese releases, including trade, retail sales, and employment will capture our interest.
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Raiko Shareef is on the BNZ Research team. All its research is available here.
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