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New Zealand's employment data for Q2 showed unexpected strength, with employment growing by 0.4%, defying expectations of a -0.3% contraction. However, the unemployment rate increased from 4.4% to 4.6%, which was still better than the anticipated 4.7%. The labor force participation rate also saw a modest rise of 0.2% to 71.7%, while the employment rate remained steady at 68.4%.

All sector wage inflation was recorded at 1.2% qoq and 4.3% yoy. Private sector wage inflation stood at 0.9% qoq and 3.6% yoy. The public sector saw higher wage inflation at 1.8% qoq and 6.9% yoy, with the annual rate hitting a series high.

Full NZ employment release here.

The New Zealand labour market is softening, but wage growth remains on the high side, partly supported by government pay agreements.

• Unemployment rate: 4.6% (prev: 4.4%, Westpac f/c: 4.7%, RBNZ f/c 4.6%)
• Employment change (quarterly): +0.4% (prev: -0.3%, Westpac f/c: -0.4%, RBNZ f/c +0.1%)
• Labour costs (private sector, quarterly): +0.9% (prev: +0.8%, Westpac f/c: +0.7%, RBNZ f/c +0.9%)
• Average hourly earnings (private sector, ordinary time quarterly): +1.4% (prev: +0.2%)

New Zealand’s labour market has continued to soften in broadly the manner that the Reserve Bank was expecting. Unemployment is steadily ticking higher, despite some volatility in the underlying figures. Less helpful for the RBNZ is that wage inflation remains uncomfortably high on the face of it, though this is more concentrated in sectors where government pay agreements are still taking effect.

The unemployment rate rose to 4.6% for the June quarter, slightly less than market predictions, but in line with the Reserve Bank’s most recent forecast. The March quarter was revised up slightly from 4.3% to 4.4% (as we noted in our preview, it was already extremely close to 4.4% before rounding). The unemployment rate is now at its highest level since March 2021.

As often happens with the Household Labour Force Survey (HLFS), there were some offsetting surprises in the details that don’t change our overall view. The number of people employed rose by 0.4% for the quarter, well above our estimate of a 0.4% decline. This was accompanied by a pickup in the labour force participation rate from 71.6% to 71.7%, the first increase in a year.

Our forecast was based on the Monthly Employment Indicator (MEI), which saw a steady decline in the number of filled jobs over the quarter. As we noted in our preview, the MEI is a comprehensive record drawn from income tax data, so to the extent that there is a divergence between this and the HLFS, it’s most likely to be due to sampling error in the latter. Indeed, the two had diverged in the opposite direction in the previous quarter, with the MEI recording a rise in jobs against a 0.3% decline in the HLFS. There was always a risk that we could see some payback in the June quarter, though it wasn’t our forecast (it hasn’t reliably behaved this way in the past).

We’re more inclined to believe the weak MEI jobs numbers, given that they are supported by other evidence. The Quarterly Employment Survey (QES) recorded a 0.5% fall in filled jobs and a 0.9% fall in hours paid, following gains in the previous quarter. And the HLFS itself recorded a whopping 1.2% fall in hours worked – consistent with our recent forecast that June quarter GDP will be particularly weak.

The Labour Cost Index (LCI) rose by 1.1% for all sectors in the June quarter, which actually lifted the annual growth rate up again from 4.1% to 4.2%. That included a whopping 1.9% rise in the public sector for the quarter; the private sector measure rose by 0.9%, albeit still above our forecast of 0.7%.

The wage figures were affected by pay increases in the health and education sectors, which had been previously agreed and were implemented in stages. We noted these in our preview, but we didn’t have a strong sense of how large an impact they would have – and it has clearly been on the higher side. These pay agreements boosted the public sector measure in particular, but also lifted the private sector measure to some degree (there are many providers that are privately owned but publicly funded). As a rough and ready guide, we estimate that labour costs excluding health and education rose by 3.5%yr, similar to the previous quarter.

The unadjusted analytical LCI rose by 1.2% for the private sector, with the annual growth rate slowing from 5.2% to 4.8%. This measure does not adjust for pay increases related to productivity improvements, and is perhaps a better gauge of what workers are actually receiving in hand. Overall it appears that wage inflation is slowing, but it remains above what would be consistent with the RBNZ’s 2% target midpoint.

Overall, there were no real surprises for the RBNZ in these surveys. That in itself is likely to be a disappointment for financial markets, which we suspect were looking for a result that would validate their pricing for an OCR cut at next week’s Monetary Policy Statement.

• EURCAD reversed from resistance level 1.5110
• Likely to fall to support level 1.5000

EURCAD currency pair recently reversed down from the long-term resistance level 1.5110 (which has been reversing the price from the start of 2011), standing close to the upper weekly Bollinger Band.

The downward reversal from the resistance level 1.5110 created the weekly Japanese candlesticks reversal pattern Shooting Star.

Given the strength of the resistance level 1.5110 and the overbought daily Stochastic, EURCAD currency pair can be expected to fall further toward the next round support level 1.5000 (former resistance from the end of 2023).

The Reserve Bank of Australia kept its cash rate on hold at a 12-year high of 4.35%, as widely expected by markets. In a statement along with the decision, the RBA noted that inflation is still well above its target range of 2-3%. Price growth has stabilised in the 3.5-4.0% range since December last year, most recently at 3.8%, with some acceleration in the second quarter. The latest producer price indices (+4.8% y/y) and a surprise in import prices (+1% q/q vs. -0.9% expected) pose upside risks to final prices.

The RBA remains focused on fighting inflation, a sentiment supported by an acceleration in consumer credit and relatively stable retail sales to push aside a slowdown in construction.

The RBA does not appear spooked by the recent sell-off and is not prepared to ease monetary conditions. This is positive news for the Aussie and is helping AUDUSD continue to fight for support at 0.6500, having overcome Monday’s more than 2% drop with a margin of safety. There is also a smooth RSI over-sold exit forming on the daily timeframe, signalling the potential for a bounce or reversal to the upside.

However, the pair is reluctant to gain strength without support from the global markets, where broad but multidirectional movements prevail.

• GBPUSD trims more gains after bearish channel breakout
• Technical signals remain negative; support at 1.2670

GBPUSD bears powered up on Tuesday with scope to fight the 200-day simple moving average (SMA) and the support trendline from the 2022 low at 1.2670, which triggered the April-July bull trend. Notably, the 50% Fibonacci retracement of this upleg is in the neighborhood.

The ongoing negative correction emerged after the price failed to crawl back above the broken bullish channel and the 1.2814 level, raising concerns about a bearish continuation.

Following a week-long, 300-pip drop on AUDNZD last week, this week has opened up with some renewed bullish vigor with a 150-pip correction. While this looks incredible in favor of the Australian Dollar, there yet remains some mystery as to the exact direction the momentum will follow. Here’s my outlook as touching the price action on AUDNZD, GBPAUD and EURAUD pairs.

AUDNZD – H2 Timeframe

On the 2-hour timeframe chart of AUDNZD, we can see that price faced some initial rejection from the demand zone highlighted by the rectangle, after which price broke above the previous high. The SBR price action pattern that formed after the rejection is my basis for entry; a retest of the demand zone below the 76% Fibonacci retracement level.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.10114
• Invalidation: 1.08372

EURAUD – H2 Timeframe

EURAUD on the 2-hour timeframe presents a SBR (Sweep-Break-Retest) pattern which aligns perfectly with the bullish array of the moving averages, and the 88% of the Fibonacci retracement tool. The trendline support, and the 100-period moving average support serve as additional confluences in favor of the bullish sentiment on EURAUD.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.70275
• Invalidation: 1.64423

GBPAUD – D1 Timeframe

As for GBPAUD, the Daily timeframe provides the clearest price action movement. On the Daily timeframe of GBPAUD, we see price approaching the 61% of the Fibonacci retracement zone, with a rally-base-rally demand zone overlapping the golden ratio level of the retracement tool. Considering the presence of the 50-day moving average nearby, it seems safe to expect a bullish outcome from the demand zone.

Analyst’s Expectations:

• Direction: Bullish
• Target: 1.97589
• Invalidation: 1.91051

• JP 225 index plummets to 10-month low amid global stock meltdown
• Oversold signals detected; but bulls could show up above 33,585

Japan’s 225 stock index (cash) started the month on the wrong foot, sinking by a massive 21% to a 10-month low of 30,361 in the wake of recession fears in the US and as the bruised yen finally entered a bullish cycle.

Technically, the index suffered its sharpest correction below its 200-day simple moving average (SMA) since the pandemic, reaching the lows from October 2023 before closing the day around 33,336. The latter overlaps with the 161.8% Fibonacci extension of the April-July upleg, which is currently buffering downside pressures.

However, for the index to run towards the 35,470 barrier, the price might first need to overcome the nearby resistance line at 33,585. Even higher, April’s low of 36,692 and the 200-day SMA could block the way towards the 38,000 psychological mark.

According to the RSI and the stochastic oscillator, the market is hovering near oversold levels. Hence, the bears could soon get exhausted. Nevertheless, a close below the 33,130 region could postpone any recovering attempts, shifting the spotlight towards the ascending trendline which connects the 2020 and 2023 lows at 31,400, although the line was unable to stop Monday’s freefall. If selling forces persist, the price might revisit the October double bottom area of 30,300. The 29,300 region could be the next pivot point.

In brief, Japan’s 225 index erased all its progress from late 2023 in short-period of time and some recovery could be justified given the oversold signals. Still, selling interest may not evaporate in the coming sessions, unless the price manages to step above 33,585.

• Gold prices rebounded above $2,400/oz after a dip to $2,364/oz, showing resilience despite a strengthening US Dollar.
• Gold benefits from expectations of more aggressive rate cuts and its safe-haven status.
• Geopolitical and economic risks in the second half of 2024, along with anticipated rate cuts, should theoretically support the gold rally, but a Middle East peace agreement could complicate the outlook.

Gold prices bounced back robustly yesterday following a selloff that saw the precious metal dip to around $2,364/oz. Since then, gold has rallied back above the $2,400/oz mark and continues to consolidate above this level.

The resilience of gold and sustained buying interest are evident, even with the US Dollar strengthening significantly in European trade this morning. Despite the rise in the DXY, gold prices have remained largely unaffected.

The notion of the Dollar’s demise as a safe-haven asset might be premature, given the increasing geopolitical risks. Today’s bounce in the Dollar comes amid heightened tensions in the Middle East, suggesting that the US Dollar may still retain some of its haven appeal despite ongoing recessionary concerns.

On the chart, the DXY found support around the key 102.00 level yesterday.

A rally has since followed, but the DXY is now encountering its first resistance at approximately 103.200, with further resistance ahead at 103.60. Conversely, a push to the downside from this point could lead Gold to revisit recent lows, but this would require a daily candle close below 102.60 for it to materialize.

US Dollar Index Daily Chat, July 25, 2024

Source:TradingView.com

Support

• 2400
• 2392
• 2364

Resistance

• 2420
• 2450
• 2470

Gold is benefitting from expectations of more aggressive rate cuts, along with its safe-haven appeal. Moving forward, gold could return to the rangebound behavior observed frequently in 2024.

The second half of the year presents numerous risks, both geopolitical and economic. These, coupled with anticipated interest rate cuts, should theoretically sustain the gold rally. However, a peace agreement in the Middle East could complicate the outlook, necessitating a reassessment of gold’s medium-term direction at the very least.

Economic Data, US Earnings and Geopolitics to Drive Sentiment

Data is sparse for the US this week and thus the geopolitics and US earnings may be the driving force of sentiment as well.

Among the big names on the earnings front this week, we have Occidental Petroleum and Disney reporting tomorrow among a host of other names.

Source: Earnings Hub

Technical Analysis Gold (XAU/USD)

From a technical standpoint, gold made an impressive recovery during the US session yesterday, leaving markets puzzled by its earlier selloff.

This rebound positions the precious metal for potential further gains. Immediate support at $2,400 is crucial; a daily candle close below this level could signal sustained downside pressure. The key question remains whether this will be counterbalanced by gold’s safe-haven appeal.

GOLD (XAU/USD) Chart, August 6, 2024

Source: TradingView (click to enlarge)

Support

• 2400
• 2392
• 2370

Resistance

• 2420
• 2450
• 2470

Canada’s merchandise trade balance moved sharply into surplus territory in June after three months in deficit. June's surplus registered at $638 million, with last month's deficit being revised slightly lower to $1.6 billion.

Merchandise exports increased by a hefty 5.5% in June, pulling the value of goods exported to the highest level since January 2023. Increases were broad-based, with shipments up in 9 of 11 sectors. Leading the charge was a 13.3% month-on-month (m/m) increase in crude oil shipments helped by the recently completed Trans Mountain pipeline. Exports of metal and non-metallic products also advanced at a healthy 11.8% m/m pace.

Merchandise imports also increase in June, but by a smaller amount (1.9% m/m). Gains were also broad based as 9 of 11 sectors posted increases, with outsized contributions from a 5.1% m/m increase in passenger cars and light truck imports. Elsewhere, consumer goods imports rose by 3.7% m/m and imports of pharmaceutical goods advanced by 16.9%.

In volume terms, merchandise exports and imports rose by 4.57% and 1.16% m/m, respectively.

Canada's merchandise trade surplus with the United States widened for a third straight month, up to $9.4 billion in June from $8.8 billion the month prior.

Key Implications

Despite robust export activity in June, trade will likely act as a headwind to second quarter GDP growth, as April and May data came in on the weaker end. That being said, the hand-off into next quarter could prove to be significant. The effects of the Trans Mountain pipeline expansion are now flowing through the data, with strong crude oil exports expected in the coming months.

In the Bank of Canada's recently released Monetary Policy Report (MPR), they expect GDP in the third quarter to grow by a sizeable 2.8%, higher than most forecasters expect. While we still have minimal data on how the entire economy is tracking, Q3 trade could add up to 1.0 percentage points (ppts) to headline GDP growth.