NZD tests break above 0.63 ahead of key US labour data
Friday 5 August, 2022
Daily Currency UpdateThe New Zealand dollar outperformed through trade on Thursday, extending back above 0.63 US cents amid a broad US dollar downturn. In the absence of headline news flow markets appeared content in managing positions leading into today's all-important US non-farm payroll print, settling into a holding pattern and ignoring most other stimuli. Reports China has fired rockets over Taiwan in response to Pelosi’s visit weren’t enough to shatter demand for risk as it appears unlikely tensions will escalate further. Having opened below 0.6265 the NZD climbed through the latter part of the domestic session, consolidating a break higher overnight. An uptick in US jobless claims helped the NZD mark intraday highs at 0.6315 before edging lower into this morning’s open.
Our attentions turn now to US non-farm payroll numbers. While the US labour market remains, tight there are signs of softening. A miss in new jobs created and an uptick in the unemployment rate may add some pressure on monetary policy projections.
Key MoversPrice action across major currencies was largely muted through trade on Thursday with investors content in sidelining major bets until after tonight’s US non-farm payroll print. Inexplicably the Dollar index gave up half a percent and the Euro jumped back through 1.02 to touch 1.025 while commodity currencies enjoyed a boost. An uptick in US jobless claims appeared to elevate fears the US labour market is weakening. Having suffered a contraction in GDP through the first half of the year labour market strength is pivotal in keeping the US from slipping into recession. We expect a slowdown yet the healthy pace of job creation at or around 250,000 and a largely steady unemployment print while rising inflationary pressures will make earning data all the more important. A softer than anticipated labour market portrait could dampen expectations for aggressive Fed policy, prompting a broader US dollar correction.
In other news the Bank of England (BoE) elected to raise rates by 50 basis points and as is the recent trend the pound fell sharply in the moments following the announcement. Policymakers highlighted immediate concern for inflation as the justification behind the rate hike and proffered a pretty grim forecast for the UK economy. The BoE expects inflation will soar beyond 13% before the end of the year, plunging the economy into a deep recession as GDP contracts by more than 2%. They anticipate inflation will remain above 10% through much of 2023 before correcting back toward normal levels in 2024. These forecasts spooked investors and forced the GBP below 1.21, before clawing its way back higher amid rising expectations for another 50-point hike in September. We see good GBP buying opportunities ahead as the bleak inflationary and growth outlook will weigh on monetary policy projections and the pound.
- NZD/USD: 0.6250 - 0.6350 ▲
- NZD/EUR: 0.6120 - 0.6220 ▼
- GBP/NZD: 1.9080 - 1.9420 ▼
- NZD/AUD: 0.8980 - 0.9080 ▲
- NZD/CAD: 0.8050 - 0.8150 ▲