Forex: What Everyone is Talking About
And... it's out! I'm talking about the hot piece of economic data everyone was gossiping about, the Non-Farm Payrolls (NFP.) Other than that, China released their annual CPI/ PPI first thing during Monday's Asian session as well as their trade balance data on Saturday. The major pairs continue playing with our hearts on the dance floor and we have some noteworthy data getting released this week so let's jump in and see what has been up on the forex dance floor.
What NFP Means for Fed Rate Hike Prospects
First things first before we go into detail, we saw "some" improvements in the jobs report that one could argue may be good enough for the Fed. The U.S. economy added 215K jobs in July, weaker than the predicted 225K increase and the NFP readings for the past three months, while the unemployment rate was unchanged at 5.3%. On a more positive note, the revisions in earlier reports amounted to a 14K gain, which was enough to keep the dollar’s spirits up.
Any form of jobs growth is generally good for an economy and the fact that the U.S. has been able to maintain an average employment gain of 235K for the past three months warrants additional brownie points. The Fed has even acknowledged that the labor situation continues to improve with solid job gains and declining unemployment, but whether or not the latest figures are good enough to seal the deal for a September rate hike is another question.
At the very least, the July NFP results are enough to keep Fed tightening this year within the realm of possibility. But you gotta keep in mind that there’s one more NFP report lined up before the September FOMC decision, which means that the August jobs data could set the tone for rate hike expectations and possibly the dollar’s forex behavior for the rest of the year. Mr. USA might dance carefully in the coming weeks and be extra sensitive to leading indicators for employment, so we gotta watch her moves with utmost sympathy.
Mr. Aussie & Kiwi Drop after Soft China Data
The Australian and New Zealand Dollars erased their advances they had made the final days of last week during the Asian session in an otherwise quiet forex party session. Their down moves followed disappointing Chinese economic data released over the weekend. Exports fell 8.1 percent year-on-year in July, marking the largest drawdown in four months. Meanwhile, the CPI report put the benchmark inflation rate at 1.6 percent, the highest since October.
If you are just starting with forex you must know that Chinese economy (other than being world's second largest) has direct impact on his main trading buddies, Australia and New Zealand. So looking at all the above data as a whole, the outcomes pointed to the limits on stimulus expansion that Chinese government has been planning and only shows China could face even more challenges coming up. The negative data gave Invest Divas/ Divos signals about the possibility for further interest rate cuts both from Reserve Bank of Australia (RBA) and Reserve Bank of New Zealand (RBNZ) which would ultimately result in further down moves for both currencies.
Summer days are proving to have brought vacation time on the forex dance floor as well as consolidation continues across most major pairs. The most important release beginning of the week is from National Australia Bank (NAB) with their business confidence released at 2:30 AM GMT. This is a leading indicator of economic health and changes in its sentiment can be an early signal of future economic activity such as spending, hiring, and investment. Further weighing on Mr. Aussie is China's Industrial Production out on Wednesday at 6:30 AM GMT. The UK will release their Average Earnings Index at 9:30 AM, beginning of Wednesday's London session.
Thursday brings this week's jobs report from the US followed by New Zealand retail sales data later in the evening. Friday we will see more data from the US, as well as Canada and Europe, so all and all, we can certainly find trading opportunities albeit low volatility.