Dollar pressured ahead of jobs data; kiwi leaps as rate hikes loom
The dollar was pinned near recent lows against other currencies on Tuesday, as traders awaited U.S. jobs data for a guide to the rates outlook, while labour market strength lifted the kiwi in anticipation of a New Zealand rate hike within weeks.
New Zealand’s jobless rate unexpectedly fell to 4% last quarter, its lowest since December 2019, and the New Zealand dollar jumped 0.5% to a one-month high of $0.7056.
“We’ve flown past full employment, and the economy is becoming quite overheated,” said analysts at ANZ, who expect 25 basis point hikes in August, October, November, February and May to carry kiwi rates from 0.25% currently to 1.5% by mid-2022.
Elsewhere currencies were broadly steady as markets looked ahead to partial U.S. labour data due later on Wednesday and non-farm payroll figures due on Friday. The dollar was a touch lower at $1.1870 per euro and the dollar index , which measures the greenback against six major rivals, held at 92.024.
The dollar index has now slipped more than 1% from a 15-week peak it struck a fortnight ago as U.S. yields and U.S. rate hike expectations have receded with investors questioning the strength and speed of the economic recovery.
“The big dollar picture is that there is a pullback in Fed hike expectations and we’ve seen the U.S. dollar head south,” said National Australia Bank senior strategist Rodrigo Catril, adding the focus was now on the rates implications of jobs data.
“We’ve all seen progress in the labour market, but the question is how much is good enough,” he said.
Economists polled by Reuters expect ADP payrolls data, due around 1215 GMT, to show 695,000 jobs were added last month – roughly steady on a month earlier – and for Friday’s non-farm payrolls to show 880,000 jobs added in July.
Catril said it could take several consecutive months of that kind of growth, or even stronger, to bring down unemployment sufficiently for central bankers to take note.
Safe haven currencies, meanwhile, have benefited from the dollar’s softness, particularly as nerves about the spread of the Delta coronavirus variant keep a degree of caution in currency markets.
After falling since the start of the year, the Japanese yen has gained about 2.5% against the dollar in a month and held at 108.98 yen per dollar on Wednesday, after touching its highest since late May overnight at 108.875.
The fellow safe-haven Swiss franc has also been on the front foot. It hit a seven-week high of 0.90235 per dollar overnight.
On the other side of the coin, the risk-sensitive Australian dollar has been unable to break resistance around $0.7415, even after the central bank gave investors a hawkish surprise by sticking with tapering plans on Tuesday.
The Aussie last bought $0.7406.
Sterling has found momentum from an encouraging end to COVID-19 restrictions in highly-vaccinated England, which has so far seemed not to cause a spike in virus deaths.
Attention there now turns to a Bank of England meeting on Thursday, with focus on policymakers economic projections and on what they say that means for rates. Swaps markets are beginning to price a hike liftoff around June 2022.
“If the BoE communicates a more cautious outlook, then we could see hike bets by June 2022 pushed back – putting some pressure on sterling,” said Luke Suddards, a research strategist at brokerage Pepperstone.