Markets Eye NZD Jobs Report To Decide Next RBNZ Move

(logo whooshing) – Guys very welcome to
another Week Ahead video, now we’ve seen some very interesting moves in the Kiwi dollar over the last week due to a few factors, and we think that this week’s
New Zealand employment numbers can create a great trading
opportunity on the Kiwi dollar. So let’s jump to the video now to discuss how we can prepare for this event and possibly trade it as well. As always guys we’ll start with our three-step analysis process. Step one, find the baseline
for the relevant currency, Step two, the baseline for
the upcoming risk event, and then Step three finding
the possible sentiment shifts that can cause a catalyst
or trigger to trade. Now looking at the baseline
for the Kiwi dollar, the short term buyers for the Kiwi dollar has definitely shifted
to the upside last week. This came from Westpac
after they announced that no that they no longer
expect a November rate cut from the RBNZ, but instead see the RBNZ
holding off until February 2020. The reasons they gave for this change was due to an improvement in domestic data and global market sentiment, and they also noted that
slowing economic growth and subdued inflation means
that interest rates will need to remain low for a longer time, but they don’t think
there’s enough evidence for a further cut at this stage. Now after this news the
expectations for a November rate cut by the RBNZ has fallen to
57% from a high of 80%. Now in terms of key data, the
GDP did disappoint latest GDP data and coming in with
a rise of just 0.3% versus RBNZ forecasts of 0.6, however we did have inflation
surprise to the upside with a fall to just 1.5%
whilst the RBNZ was expecting a dropped to 1.3%. Now the Kiwi dollar did
outperform the Australian dollar and gained good momentum last week following that RBNZ rate cut expectations as they were being pushed back, and according to ING a factor
that exacerbated the moves in the Kiwi dollar was
a possible short squeeze as the latest CFTC data that
showed that the Kiwi dollar was the most oversold G10 currency. Now in the short-term it is worth noting that the overall risk tone
can influence the Kiwi dollar due to it’s high-beta status. Now expect a strong risk on
tone to support the Kiwi dollar and a strong risk off-tone
to pressure the Kiwi dollar. Now we’ve also seen more
days of positive risk tone in the last week, which further supported the Kiwi dollar with its high-beta status. The main highlight for Kiwi
dollar will be that jobs report and according to Westpac, this labor report is a key
data point that could either confirm that a November
rate cut is off the table, or it could tip the balance back in favor of a rate cut for November. So this will be a very
important upcoming event. Below we have the
expectations for this week’s upcoming labor report. Unemployment rate is
expected to climb to 4.1% from a prior of 3.9, with a minimum expectation
of 3.9 and a maximum of 4.2. Job growth quarterly, a quarter
of a quarter is expected to fall to 0.3% from a prior of 0.8, with a minimum of 0.1 and a
maximum expectation of 0.4. Now it’s important to remember
that the unemployment rate had a surprising drop to
an 11-year low in June, thus an uptick in the number should not be of a major concern for the RBNZ. Furthermore, some analysts
argue that the RBNZ forecast, forecasted unemployment
at 4.4% for quarter three, thus it would need to
see a much worse number than that to alter
their course at present. Now also as growth has
slowed throughout the year and has remained soft, the RBNZ would already expect
job growth to soften alongside that as well. And how this release changes
the markets expectations for the RBNZ will be crucial
to determine the sustainability of any move and that we
might see after this release. Now it’s also important to
note that the overall risk tone will influence the Kiwi dollar
with its high-beta status, so again, expect a strong risk on tone to support the Kiwi dollar, and a strong risk of tone
to pressure the Kiwi dollar even though we might have a
miss or a beat on these numbers, the risk tone will be very important, a very important consideration. Then in terms of possible sentiment shifts that we can expect, the biggest dovis shift
from the labor report would be an unemployment
rate that comes in above the 4.2% and a job growth to slow below the minimum
expectations of one as 0.1%. Now a big miss on the
Kiwi dollar employment has the potential to tip
the balance back in favor of a rate cut for November and might cause an unwind of the bullish
moves that we’ve seen in the Kiwi dollar last week, so it will be very important
to, to keep that in mind. Even if this does happen it
will be important to see how the release has changed
the markets anticipation for that November rate cut from the RBNZ. If the release does not bring
back rate cut expectations, then the reaction in the markets
might be more short-lived. So just do take note of those
interest rate expectations following this event. Then in terms of a
potential hawkish shift, the biggest hawkish a
sentiment shift can occur if the jobs report
surprises to the upside, as the short-term sentiment
on the Kiwi dollar has shifted more positive recently, it might not take a very big beat to cause a bullish sentiment shift in the Kiwi dollar this week. So just keep that in mind. The biggest shift would occur however, if we see a beat of the unemployment rate coming in below the
minimum expectation of 3.9% and a beat of the job
growth coming in above the maximum expectations of 0.4%. Now this would further push
back the markets expectations of a November rate cut from the RBNZ and should create a
good opportunity for us to buy the Kiwi dollar in the short-term. Now currency pairs to consider for pairing against the Kiwi dollar, in the case of a dovish sentiment shift, we could look to pay the Kiwi dollar against the Australian dollar. It has also been well supported
in the last couple of weeks due to an overall positive
risk tone in the market, as well as hawkish comments from the RBA, as well as that weakening of the US dollar following that FOMC meeting. Now in the case of a
hawkish sentiment shift, we could look to pay the
Kiwi dollar against the Euro, which remains fundamentally bearish given the state of the EU
economy and the recent easing monetary policy put in place by the ECB. Now how to actually trade this event, this event will be valid
for trading phase one trades if we do get a clear sentiment shift. Now if you are interested
to learn how this phase one trades work, you can check out our news
trading strategy playlist on our YouTube channel where
we post weekly examples of how these type of events play out. If we do get a phase one move
generated by a sentiment shift then we could also look
for a possible phase two pullback from that initial move. Now we post updates on these moves inside our tradable sentiment shift reports, inside the Forex Source Terminal under the Market Insights tab, and you can see each day
which sentiment shifts are in play and which ones
are still valid for trading any phase two pullbacks. Now you can also learn
about how these setups work during our live analysis
webinar sessions each day inside the Forex Source Terminal. Guys as always thank you so
much for watching the video. If you find the content helpful, please do us a favor by clicking the like and the share button. Subscribe if you haven’t done so already, and also if you have any
questions about the fundamentals, please remember to keep them coming, post them in the comment section below so that we can make great
videos based on the questions that you guys asked us. Until the next video guys, cheers. (logo whooshing)

5 thoughts on “Markets Eye NZD Jobs Report To Decide Next RBNZ Move

  1. May I make a suggestion for a future training video for Jarratt to do? I am a Forex Source subscriber. Can he make one on using leverage? I know Jarratt often states that he does not use leverage most of the time. I have been trading for a long time and I certainly agree that over leveraging is almost a guarantee account killer, especially for new traders that are learning and don't understand risk management. However, for those with small accounts, it is very difficult to ever build your account up in a meaningful way if you never use any leverage. With a large account, it is certainly not as big of a deal because even a small percent gain equates to a large amount of money, but it is very little with a small account. Perhaps he could discuss the pros and cons in more detail as well as how to think about leverage and when it might be ok to use it. And what are the alternatives to trying and build income on a small account if you are not using any leverage most of the time. I think that would be very helpful especially to your newer members. Just a thought, and thanks as always for videos like these.

  2. Christine Lagard is to speak today. How would you balance that off for a eurnzd pair today since NZD employment data is expected?

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