US jobs topped but will inflation follow suit next week?
Friday’s stronger-than-expected U.S. jobs report took everyone by surprise and the market’s reaction was swift as the dollar surged across the board. The headline figure came in at a good 209 thousand non-farm jobs added against prior expectations of around 180 thousand. What’s more, June’s number was revised up which brought up the averages over the past three months to a cool 195 thousand jobs per month.
The rate of unemployment unexpectedly fell to a 16-year low, while wages grew by the expected 0.3% on the month. As the dollar surged on the back of the strong US jobs report, buck-denominated gold fell while U.S. indices struggled for direction as stock market participants wondered whether the dollar’s gains would hold and how, if at all, the stronger jobs report would impact the Fed’s decision in terms of the pace of future rate rises. It is worth remembering that this is only one month’s worth of data. If the dollar were to make a more meaningful comeback, we will need to see more evidence that the economy is on a sustainable path of growth and further acceleration in inflation.
Next week’s economic calendar is quieter
After a busy first week of the new month, when lots of fresh data from the month that has just ended are released, the second week of a new month is typically not as busy in terms of macro data. This, coupled with the fact that we are now well into the summer, when many market participants are on holiday, the markets tend to be fairly quiet anyway. However, the potential drop in trading volumes may mean we could see sudden sharp moves in the markets, especially if there is any further political drama in the States. Still, the end of the week will see the release of key U.S. inflation data which could help provide some further direction to the dollar. One could argue that given the extent of the dollar’s rally on Friday, the greenback could spend most of next week in consolidation until those inflation figures are released at the end of next week.
New Zealand dollar in focus ahead of RBNZ policy decision
But there are also a few other fundamental events throughout the week which could cause volatility to spike. On Monday, for example, we will have the latest inflation expectations data from New Zealand. Here, inflation expectations have gradually risen since last year and the one- and two-year ahead measures are currently standing at 1.92% and 2.17% respectively. This is well within the RBNZ's target band between 1 and 3% per cent. Thus, should inflation expectations rise further then it may influence the RBNZ's policy decisions in the coming months.
However, the central bank is highly unlikely to raise interest rates when it announces its latest policy decision on Thursday morning NZ time (Wednesday evening UK and US), regardless of how inflation expectations may have changed in the second quarter. Still, any changes in the language of the policy statement could move the kiwi sharply.