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US payroll higher than estimates

By OFX

The US jobs report released at 8:30 am EST, Non-Farm Payrolls were expected to have increased by around 189k in May the headline number was well above at 223K. Despite the NFP being the headline print, the market is more focused on the wage growth number with earnings increasing by 0.3% on a monthly basis and 2.7% as the annualized figure which was expected. The numbers are giving market participants the signal a June rate hike from the Fed is now even more possible.

Away from data, the Trump administration has enacted its threat to impose steel and aluminum tariffs overnight with Canada, Mexico, and the EU being hit with 25% import duty on steel and 10% on aluminum. . Commodity currencies dipped on the new.

Asian equities finished lower however European bourses are in positive territory this morning as positive news regarding Italy emerges. US equity markets are pointing to a higher open with futures for the Dow up 177 pts and the S&P futures are up 18 pts. Gold and oil are both lower to end the week and start the month, with gold currently at 1295.10 down 4.93 and WTI crude at 66.50 dollars per barrel done 54 cents US.

The exemption on US metal tariffs has ended for Canada, Mexico, and the European Union. An all-out trade war is no longer in question. Canada throws some punches of its own back with tariffs of its own on US exports, everything from orange juice to recreational watercraft to whiskey. Metal tariffs are being added as the Trump administration has the authority to impose duties on the bases of national security. Trudeau and Trump will meet at the G7 leader's meetings in Charlevoix, Quebec next week. The tariffs from both sides are hindering the NAFTA negotiations, as the uncertainty of a fair deal that all parties involved are seeking.

Market participants reacted strongly against the loonie after news the exemption, couple this with a weak GDP reading and the Canadian dollar fell against its counterparts erasing all its gains it made after the BOCs rate statement time change from being cautious on rate hikes to be gradual going forward. The Canadian starts the first day of a new month at 1.2977 (0.7705).

After months of wrangling and the threat of new elections roiling markets earlier this week a coalition government has finally been formed in Italy. The sticking point on Monday that saw talk’s stall was the choice of Paolo Savona as Economy Minister which was vetoed by Italian President Sergio Mattarella on concerns that his anti-euro stance could lead to Italy leaving the single currency. Instead, Economics Professor Giovanni Tria will take up the Economy Minister position with Savona taking up European affairs.

Relief has been breathed throughout the markets with European bourses up across the board and EUR/USD close to 1.17 when it look like dropping below 1.15 on Monday/Tuesday. GBP/EUR trades around 1.1365.

GBP/USD seems to have found some support around the 1.3250/1.33 handle over the past few days as concerns over Italy fade and market attention now turns to this morning’s US Jobs Report. Before this we finally had some UK data this morning with the monthly Manufacturing PMI expected to drop from 53.9 to 53.5 further evidencing that the UK's poor first quarter performance has rolled over into Q2.

The key print for the UK in the next few days will be Tuesdays services PMI as this sector represents 80% of the UK economy. Data-wise this will be the key event from the UK next week. Cable is a little under 1.33 at present.

The Australian dollar maintained a tight trading range through Thursday mainly holding onto Wednesday’s advance as risk appetite remand healthy on news Italy had moved closer to forming a viable coalition. Having touched intraday highs at 0.7592, the AUD met selling pressures and touched session lows at 0.7554 after the Fed’s preferred measure of inflation the PCE index crept higher. Year on Year indicators touched the Fed’s target at 2% and firmed expectations for three rate hikes through H2 2018.

With the Fed maintaining its process of monetary policy tightening and the RBA firmly entrenched in a neutral policy setting the yield advantage enjoyed by the USD could sit as much as 1% above our own domestic unit. An unprecedented level and the primary reason we maintain a mostly bearish outlook for the AUD moving into the 2nd half of the year.

While broader ranges remain unchanged short-term direction and attentions turn now to US NFP data. A strong jobs report will only confirm the world’s largest economy is operating at full capacity with market emphasis drawn to wage growth performance as an indicator of future inflationary pressures. A strong read will put pressure on the AUD leading into the weekly close while a soft print could see topside resistance tested again.

The New Zealand Dollar enjoyed a relatively calm day, holding its gains over the past 48 hours. Opening this morning at a healthy 0.7003, the Kiwi continued its good run of form, nudging over 0.7 for the first time in almost a month. It has been one of the strong performers in FX markets over the last few days as it tracked the on-going political debate in Italy.

The New Zealand Dollar mostly drifted throughout the trading day, with little movement either way. The ANZ Business Survey was released with a weaker than expected reading that ultimately didn’t have a lasting impact on the Kiwi’s fortunes. Across the Tasman, the NZD remains relatively unchanged, although also slightly higher against its Aussie counterpart. The Kiwi will now enjoy a quiet domestic calendar to close out the week. All eyes turn to the headlines for developing stories in Europe and US trade tensions with China.