Market Briefing: US stall speed
Have a look at the latest edition of our Event Radar & Views In A Nutshell pack.
US jobs. Weaker than forecast US jobs report. US Fed rate cut expectations increase. Lower US bond yields weigh on USD. AUD & NZD firmer.
Fed policy. Step down in employment points to a series of rate cuts by US Fed. Markets toying with the idea of a 50bp move later this month.
Key Events. In the US, revisions to non-farm payrolls in focus this week, as are producer prices & CPI inflation. ECB also meets. No change expected.
Global Trends
The state of the US jobs market was in the spotlight on Friday and the data (once again) showed momentum has stepped down across the US economy. Employment growth in the US has slowed sharply with non-farm payrolls increasing by just 22,000 in August. Prior months were also revised down. Indeed, the June reading is now -13,000, the first negative print since late-2020. The 'cyclical' more economic sensitive sectors are shedding staff with reduced labour demand pushing up US unemployment (now 4.3%, a high since Q4 2021). As a result, expectations that the US Fed will step in and deliver a series of interest rate cuts from the mid-September meeting have risen. Markets are toying with the idea that the US Fed delivers a larger 50bp move later this month, with close to 6 rate cuts discounted by the end of 2026. We think the US Fed is more likely to announce a 25bp rate reduction in September, but provide guidance, through its updated forecasts, towards a faster/deeper easing cycle over the next year.
The weaker US data exerted a bit of downward pressure on equities (S&P500 -0.3%), while bond yields fell as the shifting US Fed policy assumptions were baked in. The US 2yr rate declined 8bps and is now near the bottom of its multi-year range (now ~3.51%). In FX, the USD lost ground with EUR (now ~$1.1717) and GBP (now ~$1.3502) edging higher and the interest rate sensitive USD/JPY (now ~147.97) slipping back. Weekend news that Japan’s PM Ishiba was resigning following consecutive electoral defeats has weighed on the JPY a little in this morning’s Asian trade. Elsewhere, the AUD (now ~$0.6553) and NZD (now ~$0.5891) strengthened with the AUD not that far from the top of its year-to-date range.
This week revisions to US non-farm payrolls through to March 2025 are due (Tues night AEST), as is US producer price (Weds night AEST) and consumer price (Thurs night AEST) inflation. The European Central Bank also meets (Thurs night AEST). No policy changes are expected from the ECB, rather the focus will be on how high the bar is for any further adjustments down the track. In the US, negative non-farm payrolls revisions appear likely with the pace of growth between April-2024 and March-2025 set to be scaled back. While this might bolster the case for US Fed action, signs of greater pass-through to consumer prices from tariffs may see markets trim their more aggressive near-term views, in our opinion. This could see the USD rebound a bit short-term. However, we don’t think this will last too long or extend too far. Slower US growth combined with a steady stream of US Fed rate cuts should, in our opinion, see the USD trend lower over the longer-run.
Global event radar: US Payrolls Revisions (Tues night), ECB (Thurs), US CPI (Thurs), China Data (15th Sep), US Retail Sales (16th Sep), BoC (17th Sep), US Fed (18th Sep), BoE (18th Sep), BoJ (19th Sep), Global PMIs (23rd Sep)
Trans-Tasman Zone
The softer USD on the back of the weaker than predicted US jobs report and heightened expectations that the US Fed could deliver a series of interest rate cuts has boosted the AUD and NZD (see above). The NZD (now ~$0.5891) is back near its 1-year average, while the AUD (now ~$0.6553) is ~1% from its year-to-date peak. The AUD has also ticked up on some of the major crosses. The pull-back in the JPY following weekend news Japan’s PM Ishiba was resigning has helped AUD/JPY edge up towards the top of its multi-month range (now ~96.97), while AUD/CNH (now ~4.6719) is tracking north of its 1-year average. AUD/CAD (now ~0.9066) has risen to a ~6-month high after widening cracks in Canada’s jobs market boosted bets that the Bank of Canada may have more work to do. Unemployment in Canada is now 7.1%, a high since mid-2021. AUD/NZD (now ~1.1124) has consolidated at elevated levels with fundamentals still in Australia’s favour, in our view.
There are no major data releases in Australia this week with consumer and business confidence due (both Tuesday). Rather, the AUD’s short-term fortunes will be driven by swings in the USD and the upcoming US data releases. This week in the US non-farm payrolls revisions (Tues night AEST), producer prices (Weds night AEST), and CPI inflation (Thurs night AEST) are on the run sheet, with the European Central Bank also meeting (Thurs night AEST).
As discussed above, we think some USD (and hence AUD/USD) volatility is possible with downward revisions to US non-farm payrolls likely to be offset by signs of greater tariff pass-through in US inflation. On net, we believe this might see the AUD ease back a bit over the near-term, however we don’t think the moves should be overly pronounced. Over the longer-term (i.e. next ~3-12 months) we believe the AUD should continue to trend higher. We think the AUD can be supported by a combination of a softer USD as US Fed rate cuts re-commence, ongoing measured/cautious approach from the RBA, upturn in Australian economic activity, and/or signs of improvement in China’s economy as its stimulus push helps counteract tariff headwinds across its export sector.
AUD & NZD event radar: US Payrolls Revisions (Tues night), ECB (Thurs), US CPI (Thurs), China Data (15th Sep), US Retail Sales (16th Sep), BoC (17th Sep), US Fed (18th Sep), NZ GDP (18th Sep), BoE (18th Sep), BoJ (19th Sep), Global PMIs (23rd Sep), AU CPI (24th Sep), RBA (30th Sep)
AUD levels to watch (support / resistance): 0.6420, 0.6490 / 0.6590, 0.6640
NZD levels to watch (support / resistance): 0.5810, 0.5830 / 0.5930, 0.5960
Market Moves
Peter Dragicevich
Currency Strategist - APAC
Upcoming Events)
MONDAY (8th September) CNY Trade Balance (Aug) (no set time) JPY Current Account (July) (9:50am) EUR Germany Industrial Prod. (July) (4pm)
TUESDAY (9th September) NZD Manufacturing Activity (Q2) (8:45am) AUD Consumer Confidence (Sep) (10:30am) AUD Business Conditions (Aug) (11:30am) USD NFIB Small Bus. Index (Aug) (8pm)
WEDNESDAY (10th September) USD Payrolls Revisions (12am) GBP BoE’s Breeden Speaks (1:15am) CNY CPI/PPI Inflation (Aug) (11:30am) USD PPI Inflation (Aug) (10:30pm)
THURSDAY (11th September) EUR ECB Decision (10:15pm) USD CPI Inflation (Aug) (10:30pm) USD Initial Jobless Claims (10:30pm) EUR ECB Pres. Lagarde Speaks (10:45pm)
FRIDAY (12th September) NZD Card Spending (Aug) (8:45am) AUD RBA’s Jones Speaks (12pm) GBP GDP – Monthly (July) (4pm) EUR ECB’s Rehn Speaks (6pm) EUR ECB’s Nagel Speaks (6:15pm)
SATURDAY (13th September) USD Uni. of Michigan Sentiment (Sep P) (12am)
*Note, all times/dates provided are AEST
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