The stakes are high for tomorrow’s Non-Farm Payrolls report causing some trades to reduce long dollar positions ahead of the high profile release. Federal Reserve officials made it very clear that the decision on a rate rise in September would hinge in large part on tomorrow’s jobs report. If non-farm payrolls exceed 200K and the unemployment rate holds steady or better yet improves, then expectations for a rate hike this month will spike, sparking a broad based dollar rally that will take USD/JPY to fresh 1 month highs. If the numbers are strong enough, we could even see 105 USD/JPY. However, NFP disappoints we could see a nasty correction in the dollar particularly after the strong gains that it has seen this month. The steepest decline should be against the British pound and New Zealand dollars – two currencies that have performed particularly well pre-NFP.
Taking a look at the leading indicators for non-farm payrolls, there’s no reason to believe that the number will be overwhelming strong. We know that Federal Reserve officials are hopeful because they have been talking about the healthy pace of job growth but the smaller amount of layoffs, rise in jobless claims and mixed confidence readings raises red flags. The increase in ADP employment change was extremely modest and t the manufacturing sector continued to shed jobs. Our most reliable leading indicator for non-farm payrolls is the ISM non-manufacturing report and that will not be released until next week. Even though U.S. policymakers have been adamant about the need for a further rate rise, investors have been very skeptical. They certainly don’t believe that the economy is healthy enough for rates to rise twice this year nor are they convinced that data is strong enough to warrant a hike in 4 weeks. An unambiguously positive report would be needed to convince them otherwise.
Investors are buying New Zealand dollars ahead of the Reserve Bank’s monetary policy decision. This demand suggests that traders don’t expect the RBNZ to signal any immediate plans to lower interest rates. Having just surprised the market with a rate cut last month, no additional easing is expected but when the Reserve Bank eased, they also warned that further stimulus may be required. So the big question is whether this view will be emphasized in April.
The RBNZ’s primary concern last month was low inflation – the central bank lowered their 2016 Q1 annual inflation outlook from 1.2% to 0.4% and their Q4 2016 annual inflation rate to 1.1% from 1.6%. They worried that prices would remain low for some time and that domestic risks would contribute to falling inflation expectations.
Thankfully consumer prices rebounded in the first quarter with the year over year rate ticking up to 0.4% from 0.1%. From an inflation perspective, the RBNZ has less to worry about but consumer spending, service and manufacturing activity weakened in the month of March, leaving the central bank with many areas of concern.
So while the RBNZ may not go as far as lowering rates in April, they could maintain their dovish bias, which would renew the decline in the New Zealand dollar.
Here’s a look at how New Zealand’s economy performed between the March and April meetings
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This morning, central banks around the world released their latest reports on foreign exchange turnover. These numbers are for October 2011. FX trading volume declined in every part of the world except for the U.S., where it rose to a fresh record high in October. The anomaly in the U.S. may have to do with the improvement in risk appetite in October – stocks rose strongly, which could have made US investors more willing to take on risk. In other parts of the world, trading volumes in the Swiss Franc and Japanese Yen could have suffered from central bank intervention, which capped volatility in those pairs.
London Link to Report
– Average daily reported UK foreign exchange turnover was $1,972 billion in April 2011, 3% lower than in October 2010, and 17% higher than a year earlier. This was off the highest level of turnover recorded since the survey began in April.
– The decrease in turnover was driven by a 9% fall in FX swaps activity. Spot turnover rose
2% to a record survey higher.
New York Link to Report
- Daily FX market turnover rose to a record $977 billion for the Oct 2011 reporting period, up 20% from prior year
Singapore Link to Report
– Average daily reported ‘traditional’1 foreign exchange turnover was US$308bn, a 1.1% decrease compared to April 2011.
– Average daily reported turnover in OTC foreign exchange derivatives2 was US$46bn, a 2.1% decrease compared to April 2011
Canada Link to Report
– On an average daily basis, total turnover declined by 14.4% from US$ 61.2 billion in April 2011
to US$ 52.4 billion in October. This was the first decline in traditional foreign exchange
turnover since April 2009
Australia Link to Report
– Total average daily turnover in all OTC foreign exchange instruments in the Australian market was US$167.9 billion in October 2011. This was a decline of 23 per cent from April 2011, and a decline of 14 per cent over the year.
– Average daily turnover in traditional OTC foreign exchange instruments (spot, outright forwards and foreign exchange swaps) in the Australian market was US$161.2 billion in October 2011. This was a decline of 23 per cent from April 2011, and a decline of 14 per cent over the year.
With less than 24 hours to go before members of the Greek Parliament vote on the Austerity Package, sealing the fate of Greece in the process, the euro is holding steady against the U.S. dollar. The next 48 hours could determine the overall sentiment in the global financial markets for weeks and possibly even months to come which makes it extremely important to know the approximate timing for the votes.
The first and most important vote will be on the details of the Austerity Package. This is the one that will elicit the most significant reaction from investors. The Parliamentary session begins at 10am local time which is 8am London Time / 3am NY Time. The vote is expected to be done right in time for the NY open at 3pm Local time / 1pm London Time / 8am NY Time.
Thursday’s vote is on the procedures for implementation. This could still stall the process but should be more of a technicality than anything else. This process will last longer because MPs will be giving individual speeches which will then be followed up with the vote by midnight / 10pm London Time / 5pm NY Time.
The outcome of the vote will determine whether the EUR/USD races above 1.45 or crashes towards 1.40.