By Kymberly Martin
There were stark moves in most currencies following the release of a strong US payrolls report on Friday night.
The USD index surged higher. All its peers declined, although the CAD was the weakest performer.
For once the US labour market report was unambiguously strong. Non-farm payrolls were well above expectations, at 255k.
The unemployment rate only remained steady at 4.9% due to a rise in the labour market participation rate. The USD index gapped higher on the result. It closed for the week a little off its highs, at 96.20. The 200-day moving average now sits tantalisingly at 96.60.
Around the time of the US report, disappointing Canadian data was released. It showed a disappointing decline in July employment and a larger than expected June trade deficit. The CAD fell sharply. From 1.3010 the USD/CAD shot up to end the week at 1.3170.
European currencies also fell sharply against the USD. The GBP/USD made intra-night lows near 1.3020 before limping higher to close the week at 1.3070. It remains above its early-July lows near 1.2800. However, our core view is for the GBP/USD to trade below this level in the months ahead.
The NZD/USD and AUD/USD both climbed higher on Friday evening ahead of the US payrolls report. However they slumped on the release. The AUD/USD managed to grapple its way off its lows to end the week at 0.7620, not far below Friday morning’s level.
The NZD/USD traded near 0.7220 ahead of the payrolls report. It fell sharply on the release, closing for the week at 0.7140.
The NZD/AUD was also hit. From evening highs near 0.9430 it ended the week at 0.9370. The two key risks event for the cross this week are Wednesday’s speech by RBA Governor Stevens (will he make clear the RBA retains an easing bias?), and Thursday’s RBNZ meeting.
The market already fully prices a 25bps OCR cut this week and almost 40bps of further cuts beyond that. If the RBNZ does not indicate at least this much easing is to come, the risk is we see the NZD bounce.
Get our daily currency email by signing up here:
BNZ Markets research is available here.