Talking Points:
- Upbeat Jobs Data May Boost US Dollar, Drive Broad-Based Risk Aversion
- NZD Down as Dairy Prices Slump, Fueling RBNZ Rate Cut Speculation
The New Zealand Dollar underperformed in overnight trade, falling as much as 0.5 percent on average against its top counterparts. The move tracked a slide in front-end bond yields, pointing to building RBNZ interest rate cut expectations as the driver behind the selloff.
The dovish shift in policy bets appeared to follow the release of results from New Zealand’s bi-monthly dairy auction. The average winning price for whole milk powder – the benchmark for what the island nation’s top export commodity can fetch on global markets – dropped to the lowest level since July 2009 ($2054.33/metric ton).
This warned that a slump in earnings from overseas sales may weigh on growth and beckon monetary easing. The priced-in probability of a 25 basis point RBNZ rate cut at this month’s policy meeting is now 92 percent, up from 82 percent yesterday. That makes traders the most certain of an on-coming easing in over four years.
Looking ahead, the European data docket is relatively quiet while the Greece fiasco is in stasis until the weekend’s referendum on the creditors’ proposed reforms-for-cash framework. This is likely to shift the spotlight to June’s US Employment data. A 233,000 gain in nonfarm payrolls is projected, marking a slowdown from May. US news-flow has been improving relative to expectations since mid-May however, opening the door for an upside surprise.
Such an outcome may trigger a forward shift in the expected timeline for the onset of Fed rate hikes. This is likely to bode well for the US Dollar. It may likewise trigger risk aversion, weighing on sentiment-geared currencies like the Australian dollar and driving the Japanese yen upward amid carry trade liquidation.
