By Stuart Talman, XE currency strategist
Sentiment soured through Tuesday inducing a noted pullback in risk assets which commenced in the early Asian afternoon and through the London morning. European equity markets were heavy, most commodities extended their recent slide whilst pro-cyclical currencies were clear laggards.
Extending Monday's overnight surge, the New Zealand dollar marked fresh 3-month highs a couple of pips shy of 62 US cents in late morning trade before reversing course through the second half of the Asian session, failing on a second attempt to establish a foothold above 0.62.
Despite no apparent catalyst, selling momentum stepped up heading into the commencement of European trade, NZD/USD falling circa 50 pips from intraday highs to mark Tuesday's lows in the 0.6150's.
The dollar's gains have been pared through US trade following the release of weaker-than-expected JOLTS Job Openings data, in turn NZD/USD recouping around half of the intraday peak to trough retreat.
The Kiwi is a middling performer on the G10 leaderboard, easing around a tenth-of-a-percent.
The JOLTS data kicks off a stacked week of US labour market data, followed by the widely maligned ADP Employment Change reading this evening and the week's headline data point, Nonfarm Payrolls, released Friday. NFP is expected to report 190K jobs added through May whilst the unemployment rate is projected to remain at 3.9%.
Last month's NFP miss, a material pick-up in weekly jobless claims and April's JOLTS number falling to a 3-year low (8.059M vs 8.34M, expected) provide recent signs the cooling of the US labour market is gaining momentum.
Over the past few FOMC press conferences, Fed Chair Powell has commented regarding the labour market moving into better balance as jobs growth slows and the unemployment rate approaches 4%.
Looser labour market conditions in addition to inflation resuming its journey towards the Fed's 2% target will provide the impetus for the Fed to commence cutting.
However, price pressures remain too elevated for comfort, Powell and his FOMC colleagues require a couple of months of additional disinflation to pull the monetary easing trigger.
US CPI is next released on 12 June.
Looking to the day ahead, Aussie GDP is the week's headline event across the Tasman, 1Q growth projected to print at an anaemic +0.2%, largely driven by sustained weakness in household consumption. On a per capita basis, economic growth has been contracting for over 12 months.
Rebounding over two-and-a-half percent from the 06 May swing low a few pips below 0.9070, NZD/AUD has recouped over half of the February - May sell-off. Logging an intraday gain of four-tenths-of-a-percent, the pair fell just short of reclaiming territory north of 0.93 through Tuesday's sessions.
Both the RBNZ and RBA are faced with difficult decisions.
Economic growth on either side of the Tasman has significantly deteriorated in recent quarters, however domestic, aka non-tradeables, inflation remains far too elevated to commence rate cuts.
Currently, the RBNZ presents as the more hawkish of the two antipodean central banks, more willing to push the economy into recession to return inflation to the 1%-3% target band.
Other potential market moving events for Wednesday include the Caixin Services PMI out of China, ADP Employment Change and the ISM Services PMI for the US and the Bank of Canada's interest rate decision. The BoC is widely expected to commence its easing cycle, lowering the policy rate from 5.00% to 4.75%.
The ISM Services PMI is the key data point to observe, last month, unexpectedly falling into contractionary territory (a reading below 50.0). Another downside miss (50.5, expected) would add to the narrative of a US slowdown, driving the yields and the dollar lower, propelling the Kiwi through 62 US cents.
Stuart Talman is Director of Sales at XE. You can contact him here.
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