NZ dollar falls as strong US jobs data pares Fed rate-cut expectations

Monday 8th July 2019

The New Zealand dollar fell after stronger-than-expected US jobs data pared expectations of a hefty rate cut by the Federal Reserve this month.

The kiwi was trading a 66.20 US cents at 7:50 am versus 66.27 late Friday in New York and 66.77 at 5:10 pm Friday in Wellington. The trade-weighed-index was at 72.53 versus 72.59 late Friday in New York

Total non-farm payroll employment increased by 224,000 in June and the unemployment rate was little changed at 3.7 percent, the US Bureau of Labor Statistics reported. Markets had expected an increase of 165,000.

The 224,000 was a "massive recovery from the previous month," Kiwibank trader Mike Shirley.said. "The US dollar surged and everything else tumbled."

Shirley said the strong data had caused investors to pare back expectations for rate cuts. While a 25 basis-point rate cut is "still pretty much expected by everyone, no one is talking up the odds for a double-whammy 50 point rate cut," he said.

Market pricing is now showing a 5 percent chance of a 50-point cut and a 95 percent chance of a 25-point cut, according to the CME FedWatch Tool. Prior to the jobs data, there was a 30 percent chance of a 50 basis-point cut. The Fed is due to meet July 30-31.

Looking ahead, Mark Lister, head of private wealth research for Craigs Investment Partners, said globally, the focus this week will be on the testimony to US Congress from Fed Chair Jerome Powell. He testifies before Congress twice this week, first on Wednesday before the House Financial Services Committee and then on Thursday at the Senate Banking Committee.

"This will be a key event in the coming week, as markets look ahead to the Fed meeting at the end of July, where expectations of a rate cut are high."

Lister said despite those expectations "the strong jobs report has thrown that into question during recent days, with markets now starting to question whether economic conditions are worsening enough to justify an immediate policy reaction," he said. If Powell wants to "dissuade the market from getting ahead of itself ahead of the Fed meeting, this week is his opportunity to do so," he said.

The kiwi was at 94.87 Australian cents from 94.97 on Friday. It was at 52.83 British pence from 52.94, at 58.98 euro cents from 59.05, at 71.74 yen from 71.87, and at 4.5628 Chinese yuan from 4.5677.

(BusinessDesk)

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