Market Update 05/06/2024

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Equity markets eased as data from the US and Germany suggested weakening labour markets. The yield on the US 10-year bond dropped by 5bps to 4.33%, increasing the likelihood of a rate cut. However, the USD DXY is holding steady in the low 104s, limiting significant gains for the Kiwi.
 
NZDUSD encountered resistance just below 0.6200 around midday yesterday. Overnight, Job openings in the US fell to 8.06 million in April, a significant decrease from the revised March figure of 8.36 million. This is the lowest number of job openings since early 2021. After dropping below 0.6160 overnight, it has stabilised around 0.6175. The next target for the NZD is 0.6200, a level not seen since early March. The Fed’s announcement & press conference next week Thursday morning NZT will be closely watched for hints about the timing of expected rate cuts. A cooling US labour market has slightly increased the chances of a September cut, with a November cut fully priced in. In contrast, the NZ market expects the first cut in November. Earlier cuts by the Fed compared to later cuts by RBNZ would likely support the NZD.
 
AUDUSD has weakened, falling to 0.6650, partly due to generally lower commodity prices. Meanwhile, NZDAUD has continued to climb, reaching nearly 0.9300 early this morning. Australian Q1 GDP data will be released at 1:30pm NZT, with consensus expecting a modest 0.2% increase.
 
NZDJPY has dropped to 95.63 after hitting a new 17-year high of 96.85 yesterday. USDJPY has fallen to 154.81. Lower Treasury yields have played a role, but another factor could be Bloomberg’s report suggesting that the BoJ might discuss reducing bond purchases at its policy meeting next week. They are considering whether it’s the right time to slow down bond buying and if they should offer more details on future plans to avoid surprising the market.
 
NZDEUR & NZDGBP have been trading steadily at 0.5675 & 0.4835. Germany’s unemployment rate stayed at 5.9% in May, but new claims rose by 25k, significantly exceeding expectations and the 10k increase in April.
 
Today, data releases include NZ terms of trade, Australia Q1 GDP data, Japan Wages and China Caixin PMI. Tonight, the US ADP employment report and ISM services index will be released (last month, the latter caused market movement when it unexpectedly dropped below 50, but the consensus expects it to rebound to 51.0). The Bank of Canada might start its easing cycle, with a majority of economists anticipating a 25bps cut in the policy rate to 4.75% and the market pricing an 80% chance of this happening.



 Here are the latest mid-market rates:
 

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