Hello, forex friends! The numbers are finally in and the reports are out! Time to take a closer look at the jobs reports for the U.S. and New Zealand to see if they offer hints on the future direction of their respective economies, and to see if they could potentially affect the medium to long-term forex trends of their respective currencies.
The United States
- Jobless rate: 5.0% as expected vs. 5.1% previous
- Labor force participation rate: held steady at 62.4%
- non-farm employment change: 271K vs. 179K expected, previous downgraded from 142K to 137K
- Average hourly earnings: 0.4% vs. 0.2% expected, 0.0% previous
As I mentioned in my Forex Trading Guide for the NFP report, leading indicators were pointing to a potential upside surprise. And lo and behold because we did get an upside surprise when the non-farm payrolls printed a net increase of 271K jobs, which is significantly better than the expected 179K increase. It’s also higher than the 12-month average of 239K, and it was enough to cause the jobless rate to tick lower to 5.0%. And it’s a healthy downtick too since the labor force participation rate held steady at 62.4%, and wage growth printed a pleasant surprise to boot.
Looking at the details of the report, the retail trade industry contributed a large chunk of the job gains with 43.8K, which is a sudden jump from September’s 5.8K. The construction industry is also noteworthy since it printed a net increase of 31K, which is the third consecutive month of accelerating job gains (12K in September, 8K in August). The manufacturing sector is a bit lackluster, though, since it was essentially unchanged after letting go of 9K jobs back in September and 19K back in August.
Overall, the NFP report was pretty awesome (if you’re bullish on the Greenback). And forex traders, especially the interest rate junkies, responded very well to the upbeat NFP report since it appears to support a highly anticipated December rate hike. And Chicago Fed President Charles Evans seems to think so too, but he also added that he “would like to see wage growth go up quite a lot.” However, I have to say at this point that the labor force participation rate in the U.S. is rather low (and has actually been on a downtrend since 2008) so there’s still some slack there.
- Jobless rate: 6.0% as expected, 5.9% previous
- Labor force participation rate: 68.6% vs. 69.3% previous
- Employment change: -0.4% vs. 0.4% expected, previous downgraded to 0.1% from 0.3%
As Pip Diddy pointed out in his Top Forex Market Movers of the Week for the trading week ending on November 6, one the themes for the trading week was “Kiwi obliteration” due to another drop in the GDT price index and New Zealand’s disappointing jobs report. But is it that disappointing? Well, let’s find out by digging a littler deeper into the actual report and by looking at the trends.
To begin with, the jobless rate ticked higher to 6.0% in the September quarter, which is the second consecutive quarter of worsening unemployment levels.
Even worse, the labor participation rate has also been dropping for the second straight quarter. Also, employment saw a net decrease of 0.4% or 11K instead of seeing further gains of 0.4%, and the unexpected drop in employment is the first ever since the September quarter of 2012 – that’s three years.
Worse still, the jobs report states that this is the second consecutive month that New Zealand’s economy has been unable to keep up with the growth in the working-age population, hence, the continued slide in the labor force participation rate.
Furthermore, the manufacturing sector saw the largest drop in employment, losing 7.2K jobs or 4.1%. That’s a pretty large chunk! Another downward contributor to job growth was the retail trade industry’s loss of 3.5K jobs or 2.5% of the sector’s total work force, which could be a bad sign for consumer spending.
Overall, New Zealand’s jobs report paints a pretty sour picture that probably made forex traders doubt the RBNZ’s upbeat statement in their annual report that New Zealand’s “economy has performed much better than many advanced economies in recent years” and focus instead on RBNZ Governor Graeme Wheeler’s statement that “some further reduction in the OCR seems likely” depending on the “emerging flow of economic data.”
What does this mean for NZD and USD forex trends?
In a nutshell, it potentially means further USD strength and more losses for NZD.
For the U.S. and the Greenback, the upbeat NFP report could continue to fuel expectations of a December rate hike until the next and final NFP report comes out on December 4 (next FOMC statement is on December 16) unless other economic indicators disappoint.
But looking at the NFP report, consumer spending, could be seeing some improvement since the retail trade industry saw a large increase in employment. And that’s a seasonally-adjusted figure, by the way, so it’s not due to Halloween or something like that. The surprise increase in wage growth is a good thing as well since that and the potential rise in consumer spending could mean stronger inflationary pressure to fight off the deflationary pressure from the recent decline in oil prices.
As for New Zealand and the Kiwi, things don’t look too good since the significant drops in both the manufacturing and retail trade industries could potentially mean a slowdown in economic growth.
And as I already mentioned, the RBNZ is still open to cutting rates depending on the “flow of economic data” and the recent jobs report is not exactly helpful in dissuading the RBNZ from cutting rates further, but we’ll probably get to know more about what RBNZ officials think when the Financial Stability Report is released this coming Tuesday (Nov. 10, 8:00 pm GMT), so mark your forex calendars for that.
But looking at NZD/USD’s 1-hour forex chart in particular, price seems to be consolidating above the 0.6500 major psychological level after the NFP report + NZ jobs report combo caused the pair to break out of a pretty obvious descending channel.
What do you guys think will happen next? Make sure to share your thoughts on the poll below!