KING DOLLAR CONTINUES TO SOAR AHEAD OF FED

Statistics New Zealand released the quarterly employment data which were mixed. The data showed that the unemployment rate declined to 4.1% compared to last quarter’s 4.5%. The employment change, which measures the change in the number of people employed grew by 0.6% compared to last quarter’s 0.5%. At the same time, the data showed that the participation rate declined to 70.80% compared to last quarter’s 71.00% while the labor costs index grew by 0.3% in the quarter.

In the UK, Theresa May continued to face the challenge of Brexit negotiations. The current problem has to do with the North Ireland border. The two sides have proposed divergent ways on how to deal with North Ireland and the customs union issue. The EU has advised that this issue could drag for years. Internally, the prime minister faced a challenge after her internal minister, Amber Rudd resigned. From a data standpoint, data from the Chartered Institute of Procurement and Supply showed that manufacturing slowed as the second quarter started. The IHSMarkit data showed that manufacturing PMI declined to a 17-month low of 53.9. Today, the construction PMI rose by 52.5, which was better than expected.

In China, the Caixing Manufacturing showed that the outlook for the manufacturing industry is improving. The PMI data from Markit showed that the outlook rose to 51.1, which was higher than last month’s 51.0. The data shows a continuation of the strength of the Chinese manufacturing after dipping to 49.6 in June last year. In Germany, the manufacturing PMI data remained unchanged at 58.1 while that of the EU rose from 56.0 to 52.6.

In the US, ADP released data on private payrolls that were lower than last month’s but which were above the analysts’ forecast. According to ADP, private companies added 204K jobs in April compared to 228K in March. The data came a few hours before the Fed is expected to release the interest rate decision and just a day before the official jobs numbers. Since the Fed is expected to leave interest rates unchanged, traders will look out for the accompanying statement on their decision.

EUR/USD

The EUR/USD pair is trading at 1.2000, which is the lowest level since early January. The current downward trend is as a result of the European economies and the hawkish Fed. It is also a result of the flattening yield curve. A while ago, the yield on the ten-year rose to 3%, which is the highest level since 2014. Yesterday, the yields on the five-year rose to the highest level since 2008. The downward momentum could continue if the Fed releases a hawkish statement. This is possible especially after data on Monday showed that (Core Personal Consumption Expenditure) PCE had reached the target of 2%.

GBP/USD

The cable is trading at 1.3645. This is a downward trend that saw it cross the important support level showed below. The downward momentum came amid disappointing data from the UK and the ongoing issues on Brexit. After breaching the support level of 1.3735, the pair could continue moving lower especially if the Fed releases a more hawkish statement.

NZD/USD

The NZD/USD pair continued the downward momentum after employment data showed mixed results. The pair is now trading at 0.7010, which is its lowest level since December last year. The downward momentum is also partly attributed to the strengthening dollar. The dollar index rose by more than 2.80% in April. A move below 0.6985 could signal more declines by the kiwi.