NEWS / Foreign Exchange

Strong payrolls overshadowed by credit fears

New Zealand dollar

NZD recovers despite soft equities. Carry trade currencies managed to finish last week on a positive note despite every major stock market losing ground by the NZ close on Friday. The NZ dollar bounced off a two-week low at 0.7572 early Friday morning, bucking the recent trend of tracking broad stock market moves. The NZD bounce was more of a slow grind higher, led by the AUD with notable demand out of Asia. The high traded at 0.7665 during the NY trading session despite a very strong Non Farm Payrolls number in the US. We begin the week at 0.7640.

Australian dollar

AUD rallies off two-week low. The AUD benefited from the renewed demand for carry currencies on Friday and rallied steadily from 0.9110 to 0.9250. Although resistance was met at 0.9190 and profit taking instigated a minor selloff, it was short lived and provided better levels to buy USD/AUD before a rally to the highs ensued. Gold rallied to another all time high at 807, assisting the AUD in its recovery and pushing NZD/AUD down to 0.8280, a 27-month low. The AUD opens at 0.9215 and 0.8295 against the USD and NZD respectively.

Major currencies

Strong payrolls overshadowed by credit fears. Further credit fears hit the market overnight and as a result not even the strongest non-farm payrolls report in five months could prevent the USD slumping to record lows against the euro and a basket of other major currencies. Payrolls gained by 166k in October compared to forecasts of 88k but any gains for the USD were shortlived thanks to a 1.5% drop in financial stocks on Friday. Most notably the euro hit a fresh all time high of 1.4526 against the USD while the Sterling was up 0.6% on the day to close around a new 26-year high of 2.0870.

Economic data and events

US payrolls jump 166k in Oct. Payrolls posted its largest (and first >100) monthly gain in five months in October. But the headline result was pretty much the best part of the release. Revisions, albeit modest, were to the downside (??“10k to Aug-Sep). The separate household survey jobs measure was down 250k, its third loss in four months for a three month average of ??“34k in Aug to Oct, way down from 107k in May to July. The jobless rate climbed by nearly a third of a point to just over 4.70% for the first time since July last year although rounding kept the published rate steady at 4.7%. September hourly earnings growth was revised down by a couple of cents and the October gain was the slowest since April at just 0.2%. That, coupled with the third consecutive month of just modest 0.1% growth in hours worked, means that household income growth will have posted a below trend gain in October.
US factory goods orders posted a modest 0.2% gain in Sep with the known fall in durables offset by higher energy prices boosting non-durable orders. The jump in factory inventories was also, in part, an energy price story but the gain was still big enough to suggest Q3 GDP may need to be revised a little higher.
The UK construction PMI fell for the second month running, to 57.4 in Oct, but remains elevated (in line with its average through the first half of this year).
Canadian jobs growth continues to impress, but the 63k jump in Oct still looks a little suspicious. Private sector jobs grew just 7k to be down 2k over the past three months, whereas public sector jobs rose 38k for a 141k quarterly total. 18k self-employed made up the rest of the 63k in October. The majority of last month??™s jobs gain was in the 55+ age group, which has seen employment growth of 6.9% since the start of the year, compared to 1.2% for 25-54 year olds. The unemployment rate edged down to a fresh 33 year low and hourly wages growth at 4.1% yr was above 4% for the third month running, confirming that the labour market can now be classified as ???tight???. This report is definitely not supportive of the view that the Bank of Canada might be contemplating a near term policy easing.