US Jobs report defied expectations for May with the unemployment rate falling from 14.7% to 13.3%, vs market expectations of a rise to 20%. The print did raise eyebrows with BLS pointing to those on Covid temporary unemployment not being captured and lower than normal survey responses. The S&P500 rose 2.6% with bond yields reaching a three-month high.
The US dollar on the back of the strong US jobs data
EUR fell from 1.1384 (a three-month high) to 1.1279
USD/JPY jumped from 109.20 to 109.85 – a two-month high.
AUD initially made a fresh five-month high at 0.7013, before slipping back to 0.6960
NZD made a four-month high at 0.6628 before slipping to 0.6500
AUD/NZD slipped further to 1.0699.
Brent futures rose 5.8% to $42.30 – a three-month high, Copper rose 2.7% - three-month high, iron ore rose 2.0% to $100.55 & gold fell 1.7%
The Fed is likely to reiterate its pledge to keep interest rates low. However, sentiment could take a hit if the Fed releases extremely bleak forecasts about the economy. Investors demanding risky assets seem to be operating with another set of data. Any bearish statements from the Fed could become a reality check for investors betting on a quick recovery from the impact of the coronavirus pandemic.
If the Fed’s forecasts contradict what markets have been pricing into the stock markets and higher risk currency markets, we could see a fresh wave of selling pressure. Upside momentum is so strong so markets will be wary to chase the Australian and New Zealand Dollar higher with sentiment being there is more risk to the downside than opportunity to the upside.
With an increase in risk appetite and investor optimism driving AUD above 0.7000 last week markets saw an element of short-covering assisting the rebound. Expectations that downside demand is to continue support now in the 0.6900/20 area and then back at 0.6850.
Event Risk Data Today
New Zealand: Building work , markets looking for a fall of 5% in the Q1 update, as a result of both residential and non-residential construction declining.
Australia: Queen’s Birthday Public Holiday.
Euro Area: Sentix investor confidence is out with markets expecting a recovery to -22.0, Germany’s has industrial production for April release with market expectations of -16.5%).
Japan: Q1 GDP