Week Ahead in FX: Dismal NFP Hurts USD Raises June Rate Hike Doubts

US Jobs Report Disappointed with a 38,000 gain in May

Fundamental indicators rose in priority as the U.S. Federal Reserve had signalled in the Federal Open Market Committee (FOMC) meeting minutes that its members would consider a rate hike in June if the economy improved. The two indicators released on Friday depreciated the USD across the board. The U.S. non farm payrolls (NFP) recorded a two year low at 36,000 jobs added in May. The report was mixed as the unemployment rate dropping to 4.7 percent and wages grew by 0.2 percent. With a huge question mark having over the June FOMC meeting the lacklustre jobs report could force the Fed to exercise caution pushing the probable time table to July if not beyond.

The disappointing NFP report shifts the market focus to Fed Chair Janet Yellen’s speech on Monday, June 6 at 12:30 pm EDT. Chair Yellen will address the economic outlook and monetary policy at the World Affairs Council. After the minutes from the April FOMC meeting brought June back on, and it looks like the NFP might have pushed it off it up to policy members to manage market expectations.

The central banks of Australia and New Zealand will announce monetary policy decisions a day apart from each other. The Reserve Bank of Australia (RBA) will publish its rate statement on Tuesday, June 7 at 12:30 am EDT. The RBA cut its rate by 0.25 percent to 1.75 percent last month. The Reserve Bank of New Zealand (RBNZ) will follow suit on Wednesday, June 8 at 5:00 pm EDT. The RBA is expected to hold, while there are estimates that see the RBNZ cutting the Kiwi rate down to 2.00 percent.

The EUR/USD rose by 1.901 percent in the last week. Most of the move happened after the release of the NFP employment report. The lower than expected indicator put downward pressure on the USD after rising a wave of hawkish comments in the FOMC minutes from April. The pair is trading at 1.1355 when at one point it touched a weekly low of 1.1098. The road ahead for the USD is uncertain although Fed Chair Janet Yellen will have a change to add her comments on current economic trends on Monday.

European Central Bank (ECB) President Mario Draghi will also address the market on Thursday as part of the Brussels Economic Forum. The ECB kept rates and its QE program unchanged while keeping forecasts close to those published in March.

Energy prices fell this week. WTI lost 1.105 percent in the last 5 days. The price of West Texas is $48.07 after being close to $50 at one point during the week. The Organization of the Petroleum Exporting Countries (OPEC) meeting in Vienna brought few surprises, but perhaps the only worth mentioning is that Saudi Arabia is still taking the organization seriously. No oil production changes were agreed upon but the tone of the talks was amicable and Saudi Arabia’s new Oil minister passed a hard test by showing a flexible stand.

FX Market events to watch this week:

Monday, June 6
12:30pm USD Fed Chair Yellen Speaks
Tuesday, June 7
12:30am AUD Cash Rate
12:30am AUD RBA Rate Statement
Tentative CNY Trade Balance
Wednesday, June 8
4:30am GBP Manufacturing Production m/m
10:30am USD Crude Oil Inventories
5:00pm NZD Official Cash Rate
5:00pm NZD RBNZ Rate Statement
7:00pm NZD RBNZ Press Conference
9:10pm NZD RBNZ Gov Wheeler Speaks
Thursday, June 9
3:00am EUR ECB President Draghi Speaks
8:30am USD Unemployment Claims
11:15am CAD BOC Gov Poloz Speaks
Friday, June 10
8:30am CAD Employment Change
8:30am CAD Unemployment Rate
10:00am USD Prelim UoM Consumer Sentiment

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency
trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza