Non Farm Payrolls: Commodity prices fell further in June

Forex News and Events

New Zealand commodity prices fell in June (by Arnaud Masset)

New Zealand export commodity prices fell 19.7% from a year ago, led by falling aluminium and dairy prices. The index contracted for the third straight month by 3.1%m/m in June while previous reading was revised lower to -4.9% from -4.7%. Dairy prices declined by -4.4%m/m, Aluminium by -6.4%m/m while meat, skins and wool prices decreased by -3.4%m/m. However, thanks to a weaker NZD that reduced significantly the negative impact of lower world prices. Once converted to New Zealand dollar, prices rose 2.9%m/m while the fall in aluminium price was reduced to -0.5%m/m.

All in all, we do not expect the outlook to improve substantially over the medium-term as demand from China is expected to remain subdued while demand for dairy products will likely be weak as Russia maintained its ban on dairy imports. We therefore expect the RBNZ to support further the Kiwi economy - especially since inflation remains at record low - by cutting further its official cash rate by 25bps at its next meeting on July 23. NZD/USD validated a break of the 0.6795 support and is currently heading toward the following one lying at 0.6561. Since the market is pricing another rate cut for 2015, this support should therefore not offer too much resistance.

US NFP eyed (by Yann Quelenn)

Non-farm payrolls and unemployment rate are due later today. Those data are well considered and an adverse outcome will diminish speculations about a September rate hike. US NFP are expected to come in lower than next month at 233K vs 280k. However, Tuesday’s ADP came in largely above expectations at 237K vs 218K median forecast. Despite spectacular misses over the last few years, it has been often a good indicator of US non-farm payrolls.

For the time being, even if the traders are focused on the Greek referendum, markets will considerer closely those data in order to assess the likelihood of a rate hike in September. Over the last few months, US data came in mixed, both strong (NFP) and disappointing (home sales, consumer expectations). The pressure is now on the job market as a rate hike in September is highly dependent of a sound labour market. Furthermore, good NFP will keep on fuelling a virtuous circle that will increase consumer confidence and consumer spending which will be necessary to reach the 2% inflation target. Before increasing rates, the Fed wants to feel more confident about achieving the 2% inflation target.

This is why we think that good job figures will not be sufficient for markets to correctly price in a September rate hike. We need an additional inflation pressure. June CPI figures will be released in a couple of weeks. It will provide reasonable grounds that the 2% target is reachable. Without those basics, the Fed will take a huge risk increasing the rate. Aside inflation figures, Q2 GDP will give the final point of rate hike speculations for September and markets will start considering 2016 as a decent outcome.

EUR/USD price action is driven by Greece’s referendum, however against a backdrop of US recovery, the pair should gain downside momentum. As long as there are serious talks of increasing rates, the greenback will strengthen.

Gold - Approaching support at 1159