Commodity Currencies Encounter Heavy Event Risk From Employment Reports

[DailyFx]

The New Zealand and Australian dollars traded relatively quietly during the US trading session, but only after experiencing a surge in volatility in the Asian session as labor market reports from both regions proved surprising. First, the New Zealand unemployment rate jumped more than expected to 3.6 percent from 3.4 percent, as the labor market lost 28k workers during the first quarter, which sent the NZD/USD plummeting over 100 points within minutes.


Indeed, it appears that the Reserve Bank of New Zealand’s record high rates of 8.25 percent are having the intended impact by leading consumption to drop, business activity to cool, and inflation pressures to ease. Given these developments, if CPI continues to fall lower, the RBNZ will finally get the green light to start cutting rates. On the other hand, the Australian dollar jumped on news that the economy added on 25.4k workers, much more than the expected gain of 14.8k, while the unemployment rate rose to 4.2 percent as more people entered the market looking for jobs. The tightness in the Australian labor markets and subsequent rise in salaries has only stoked inflation concerns, and while domestic demand has started to fall, the Reserve Bank of Australia still remains hawkish and thus, will likely leave rates steady at 7.25 percent for much of the year. Meanwhile, the Canadian dollar fell across the board as Canadian housing starts fell more than expected to 213.9k units in April, led by a drop in apartment and condominium projects, down from a revised 243k in March. However, the big event risk for the Loonie comes on Friday as the Canadian net employment change will be released. This number is essentially “the other NFP report”, as the data tends to be highly market-moving for the Canadian dollar and rarely meets estimates. For more on how the Canadian net employment change may impact the Canadian markets including USD/CAD, check out Cross Market Reactions.