With most of the major central banks gunning for higher inflation, it makes sense to pay attention to employment reports for clues. After all, better job prospects usually lead to healthier consumer sentiment and more spending, which then push consumer prices higher.
Let’s take a look at the economic reports printed so far this month and see how their local currencies reacted to the releases.
U.S.: September rate hike in the works?
- 255K workers found jobs in July (vs. 180K expected) while June and May’s figures were revised higher
- Hourly earnings came in at 0.3% vs. 0.2% expected and 0.1% in June
- Unemployment rate remained at 4.9% (vs. 4.8% expected) but…
- Participation rate ticked higher, from 62.7% to 62.8%
It was all rainbows and unicorns for dollar traders last NFP Friday, as Uncle Sam printed unmistakably strong employment figures for the month of July. More jobs and higher earnings and participation rate mean that Americans are working longer, clocking in longer hours, paid more, and are more encouraged to look for employment.
Naturally, rate hike junkies pounced on the news, believing that July’s data all but signal a rate hike this year. Fed Fund futures priced in a 71.6% chance of a rate hike this year and a September rate hike got a lot of buzz. Of course, that was before we saw the not-so-hawkish FOMC meeting minutes. In any case, the Greenback shot higher across the board and left its major counterparts eating dust.
Canada: Yin to Uncle Sam’s yang
- Unemployment rate rose from 6.8% to 6.9% as expected
- A net of 31,200 lost jobs in July against the expected 10,200 gain and June’s 700 decrease
- Participation rate dipped from 65.5% to 65.4%, the lowest since November 1999
Canada’s jobs release was the yin to Uncle Sam’s yang, as it reflected weak job prospects across the board. Not only did the unemployment rate inch higher, but the participation rate also slipped, indicating that workers are getting discouraged to find employment. More importantly, most of the job losses came from full-time employment (-71,400) and would’ve been deeper in the red if not for the 40,200 part-time jobs added. Overall the figures leave more room for more BOC rate cuts.
The contrast between the U.S. and Canadian jobs numbers, as well as a weak trade balance printed on the same day, were too much for Loonie bulls. The bears attacked all session long and pulled the Loonie lower against its major counterparts.
New Zealand: New rules!
- Unemployment rate fell to 5.1% in Q2 2016 vs. 5.3% expected, 5.2% previous
- Employment increased by 2.4% vs. 0.6% expected, 1.4% previous
- Labor force participation rate rose from 69.0% to 69.7%
Forex traders were careful not to read too much into New Zealand’s strong Q2 2016 jobs numbers after Statistics New Zealand reported that it redeveloped its Household Labor Force Survey (HLFS) to identify better with self-employed workers and those in the armed forces. At the same time, the revised surveys would also fit international standards better.
This is probably why Kiwi saw upward spikes and its intraday highs at the reports’ release, but also gave back most (and in some cases, all) of its post-report gains. NZD/USD ended the day at .7241, 82 pips (-1.12%) lower than its intraday highs, while NZD/JPY also sustained an 84-pip drop (-1.14%) to 72.60.
U.K.: No post-Brexit knee jerk reaction
- Unemployment rate remained steady at 4.9% in June
- Claimant counts show 8.6K decrease vs. 5.2K increase expected, 0.9K uptick in June
- Average earnings rose by 2.4% in the three months to June against last year’s growth. It’s higher than May’s 2.3% uptick but lower than the expected 2.5% increase.
The number of people filing for unemployment-related benefits fell by 8,600 in July, which was enough to fuel speculations that the sky isn’t falling on the economy post-Brexit after all. Of course, it might have helped that June’s unemployment rate steadied at 4.9% even as average earnings popped up by an annualized rate of 2.4%.
Pound warriors took the release with a bucket of salt and mostly ignored the jobs readings. See, the Bank of England (BOE) is expecting unemployment rate to climb to as high as 5.5% before showing improvement. Market players believe that, even though employers didn’t show knee-jerk reactions to a Brexit, the heightened uncertainty will soon take its toll on hiring practices.
Australia: The devil is in the details
- Unemployment rate fell to a three-year low of 5.7% in July
- A net of 26.2K workers found jobs in July vs. 10.2K expected, 10.8K in June
- Labor force participation rate unchanged at 64.9%
- Monthly hours worked rose by 0.2%
Headline job numbers from Australia printed a strong picture, with the unemployment rate falling and net jobs and monthly hours increasing. However, a closer look tells us that the jobs increase came from 71,600 part-time workers, as full-time employment actually dipped by 45,400 for the month. Analysts also point out that the surge in part-time work might have something to do with the extended tallying from the latest elections.
The gloomy details failed to sustain the Aussie’s gains throughout the day. The comdoll ended up erasing most (if not all) of its gains against its major counterparts and is even trading at new weekly lows as of writing. Yikes!
Based on the price reactions above, we can tell that forex market players may rejoice at strong employment readings but they eventually fall back to how they think the numbers will affect the central banks’ biases. And, with most of the banks leaning towards more easing, it’s no surprise that the reactions to the releases are limited to shorter time frames. The more you know!
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