Global Themes

NZD

US wage undershoot lifts Kiwi

Strong jobs not enough to sustain Greenback’s recent rally
Non-farm payroll employment numbers out of the US hit a real sweet spot for the Kiwi on Friday night. Job gains surged by a further 213K in June, however the unemployment rate grew to 4% as more participants flocked back to the market. Wage inflation grew by a mere 0.2% on the month, with the annualised rise at 2.7%, undershooting economists’ expectations. The net result was a weaker US Dollar, as traders position themselves for the prospect of a weaker consumer inflation print from the US later this week.

For the first time in over a month the New Zealand Dollar closed higher on the week, thanks largely to Friday night’s half cent rally, and starts this week in a formative manner.

US trade deficit hits 19 month low
Export growth outstrips imports for third consecutive month
The US trade balance shrunk to a 19 month low, plummeting 6.6% in May, but still showed a whopping $43.1B deficit. President Trump will no doubt claim the shrinking US deficit as a victory in his crusade on trade, although it was more a growth in exports (up 1.9%) than a reduction in imports (which were up just 0.4%) that drove the move. Seasonally the US trade balance does fare better through Spring and Summer, and while May only saw the imposition of steel tariffs, the shrinking deficit will certainly provide fresh impetus to the US President to continue his push to win more trade wars.

We suspect that the outcome of recent tariffs might be a fall in both imports and exports as markets wait retaliatory measures from China. For now though the positive night of data pushed NZD/JPY another half cent higher, as risk returned to markets.


US and Chinese inflation in focus
UK GDP and Bank of Canada also feature this week
With a disappointing wage inflation number on Friday night, expectations for Thursday night’s overall consumer inflation have been dampened to a mere 0.2% rise for June, and that could be a risk later this week for the resurgent Kiwi.


Elsewhere UK GDP (Tuesday night) and a Bank of Canada (Wednesday night) have potential to see decent moves in NZD/GBP and NZD/CAD respectively, while Chinese inflation numbers tomorrow afternoon could give both the Kiwi and Aussie a boost if they meet or beat rather lowly expectations of a 1.9% annualised increase in June.

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