Volatility after US payroll data undershoots but underlying details solid; flurry of excitement around NZD & AUD short lived

By Kymberly Martin

The release of the US labour market report spurred a bout of volatility on Friday night. The USD ultimately closed a little higher. The JPY underperformed. The CAD was the key outperformer, supported by a rebound in the global oil price.

Most currencies traded within tight ranges ahead of the release of the much-anticipated US labour market report. Although the report showed headline payrolls were below expectation, as was hourly earnings growth, the market appeared to ultimately interpret it as a ‘goldilocks’ report. i.e. not so hot as to spur the Fed into imminent action, but not so cold as to suggest the economy is ailing. Equities surged, led by interest rate sensitive sectors.

The USD’s initial response to the headlines was to gap lower. Most of its peers surged, including the AUD and NZD. However, the moves proved short-lived. The market soon mulled the report over and concluded it was still sufficiently solid to most likely keep the Fed in play by year-end. The USD index bounced back to its previous level and inched higher into the close.

Whilst the EUR/USD closed lower, just below 1.1160, the GBP/USD managed to hold onto some of its post-payrolls gain.

The GBP/USD had also gained a brief boost earlier in the evening, after the release of a much stronger than expected August UK construction PMI. Ultimately the GBP/USD ended the week at 1.3290. It is creeping toward the upper-end of the broad 1.28 – 1.35 range it has traded since its ‘Brexit’ plunge. CFTC data show speculative net short positions in GBP remain fairly extended. The GBP/USD therefore remains vulnerable to short squeezes if data is delivered that does not support an ingrained negative view of the currency.

The NZD and AUD enjoyed their own little flurry of excitement following the release of the US report. The NZD/USD briefly traded from 0.7300 up to 0.7360. However, as the market later reassessed, the NZD/USD traded back down to end the week around 0.7290. Near-term technical resistance remains at the late-August highs of 0.7380. Near-term support is eyed approaching 0.7200.

As the US celebrates Labour Day today it may be a reasonably quiet start to week, as is typical following end-of-week payrolls excitement. The only domestic data of note today is the August print of the ANZ commodity price index. We anticipate the recent bounce in dairy prices may help the overall index to a 4% increase in August, for an annual gain of 12%.

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