US payrolls report a 'goldilocks' print, non-farm payrolls beats expectations; both NZD and AUD stronger against USD as oil price rises again; China growth target set at 6.5% - 7%

By Kymberly Martin

Volatility around the release of the US payrolls report was not enough to throw the NZD off course on Friday. It closed for the week at 0.6810, while the USD was broadly weaker.

Friday’s US payrolls report appeared to be a bit of a ‘Goldilocks print. While non-farm payrolls for February beat expectations (and there were upward revision to the previous two months), the unemployment rate was steady at 4.9% and wage pressures were apparently absent. 

While the overall message was of continued improvement in the labour market, it was not too hot for markets to fear imminent Fed action. Equities closed up and credit spreads narrowed modestly.

After the release, as the market digested the potentially contradictory signals, currency markets experienced a serious bout of volatility. The USD initially spiked higher, but later fell back to earth. The USD index closed down around 1.4% from its mid-week highs.

European currencies traded the mirror-image of moves in the USD, ending higher on Friday night. The GBP/USD extended its bounce from recent ‘Brexit’ fear lows. It closed for the week at 1.4230, up around 2.8% on the week.

Both the NZD/USD and AUD/USD were on the ascendancy from early on Friday. The release of the US payrolls report only briefly ruffled their path. Along with the NOK, the NZD and AUD were the strongest performers on Friday, likely assisted by a further 3.9% rise in the WTI oil price. The underlying oil price is now up around 37% since its early-February nadir.

The NZD/USD had little trouble in breaking through the initial line of resistance around 0.6775, trading up to 0.6810. Now strong technical resistance lies around 0.6890, the top of the currency’s trading range since mid-last year. Thursday’s RBNZ meeting will provide the next challenge for the NZD.

The other big news since Friday’s local closes was confirmation (Saturday) from China’s National People’s Congress that the 2016 growth target would be 6.5%-7%. This was as previously flagged, although there might be mild relief that it has not been officially revised down to 6.5%.

There might be some disappointment though that the budget deficit target for 2016 is set at 3% of GDP (although up from 2.3% in 2015). This outcome may throw cold water on suggestions China’s policy makers might be willing to announce fiscal stimulus on a scale that would take the deficit up to 4%, to boost the economy. 

Look out today for announcement from both China and Australia on February’s development in foreign reserves.

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Kymberly Martin is on the BNZ Research team. All its research is available here.