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NZD Higher as USD Weakens on Non-Farm Payroll Data

Published June 10, 2019

The Kiwi Dollar begins the week higher, up another half cent from Fridays levels as US Dollar weakness boosted the local currency. Worse than expected non-farm payroll numbers released on Friday night along with growing concerns the US Fed may look to loosen monetary conditions and cut interest rates both weighed on the USD.

US Payrolls Disappoint

US non-farm payrolls rose by 75,000 in May, missing market expectations of a 185,000 increase. This was the lowest number in 3 months, which triggered an immediate drop in the greenback amid concerns of broader economic weakness and has boosted calls for a Federal Reserve interest-rate cut.

THE WEEK AHEAD

Little in the way of major NZ data this week. Direction for the Kiwi will continue to come from the USD, trade war news, and any movements in the AUD after this week’s Australian employment data. Last week’s comments from RBNZ assistant Governor Hawkesby suggesting the RBNZs’ “view is that New Zealand’s interest rates will remain broadly around current levels for the foreseeable future”, has cast doubt on predicted interest rate differentials going forward. Any further data supporting a rate cut from the Fed or RBA will be NZD positive.

Will the RBA Cut again?

Last weeks cut by the RBA was expected and priced in by markets and had little impact on the Australian Dollar. The big question facing markets is whether another cut is on the cards. Labour data is a key driver of this decision making process and Employment numbers released on Thursday will be very closely watched. Trading in the AUD should be subdued today with a holiday in Australia.

Trade Wars

Trade wars continue to be the main factor driving market sentiment and risk appetite. The US Dollar had been strengthening in recent weeks due to the escalation of the U.S – China stand off, before falling back over the weekend on the lower U.S interest rate outlook. News over the weekend that the U.S has taken Mexican tariffs off the table, at least for now, will be positive for market sentiment. However, the bigger U.S-China stand off continues with no end in sight. President Trump will have an eye on re-election and needs a strong economy to improve his chances. Recent weak U.S data will place further pressure on him to resolve the trade dispute. Trump and Chinese President Xi are scheduled to meet on June 30th at the G20 summit in Japan.

US to enter Easing Cycle?

Worse than expected labour market and manufacturing data, have both weighed on the Greenback over the past few days. This weaker than expected data has sparked fears of a recession has increased the likelihood of the U.S Fed reversing its previous rate hikes and enter a period of monetary easing. The Fed has noticeably changed its stance, stating that they will be prepared to cut interest rates if the economic conditions and outlook warranted it. Markets will be looking for further clues from data releases this week, which includes inflation, initial jobless claims, and advance retails sales data.

ECB Plans to Hold Rates

The Euro has made good ground vs USD over recent weeks and this may continue given recent central bank announcements. While the US Fed is making noises around interest rate cuts, the ECB is taking a different path, with ECB President Draghi saying the bank planned to keep rates on hold through the first half of 2020. However he did also say they were ready to act if economic conditions deteriorate. The relatively hawkish stance from the ECB is in contrast to other major central banks and could keep the EUR well supported.