Average Hourly Earnings

Most aspects of the US jobs data released on Friday morning disappointed expectations, but were unlikely disappointing enough to sway the Federal Reserve from its firm track towards higher interest rates through 2018 and beyond.

For more than a week, the US dollar has risen sharply as US government bond yields have surged – with the benchmark 10-year Treasury yield briefly topping 3% – while geopolitical risk perceptions have tentatively waned.

The official US jobs report for February was released on Friday morning, and despite a stellar reading for job creation – 313,000 jobs added in February against prior expectations of around 200,000 – the data was mixed overall, as wage growth was weak and the unemployment rate was slightly higher than expected.

February US jobs data, which will be reported on Friday morning by the US Department of Labor, is poised to take on increased importance for markets and investors.

Two primary catalysts for the return of sharply elevated market volatility emanated from the U.S. – Fed Chair Jerome Powell’s hawkish testimony in front of the US Congress, and US President Trump’s announcement regarding sizeable import tariffs on steel and aluminum.

The official US jobs report for January that was released on Friday morning was highly positive, easily beating expectations on both the headline data and, very importantly, wage growth.

For the past week, all eyes have been on the World Economic Forum in Davos, Switzerland, where US President Trump and others moved markets, especially the US dollar, with their comments.

While the US jobs report took center stage on Friday, especially since the headline non-farm payrolls data significantly disappointed expectations at 148,000 jobs added in December versus around 190,000 expected, the results of the less conspicuous Canadian employment numbers were no less surprising.

The official US jobs data for December will be reported on Friday morning by the US Department of Labor, and consensus expectations are pointing to a likely continuation of the strong job creation that prevailed through much of last year (September weather disruptions notwithstanding).

The US jobs report for November was released on Friday. Although the headline non-farm payrolls number came in significantly better than expected at 228,000 jobs added in November against a prior consensus forecast of around 200,000 jobs, wage growth turned out lower than expected.

The official US jobs data for November will be reported on Friday morning by the US Department of Labor, and consensus expectations are pointing to a likely continuation of the strong job creation that has prevailed through much of the year.

On Wednesday, the US dollar continued to surge within its recent rebound that extends back to early last week, as anticipation of US tax reform continued to mount and markets looked forward to key US events on the near horizon.

Looking ahead this week, several key data releases will likely have a significant impact on AUD/USD.

As it turns out, “only” 261,000 jobs were created in the month following September’s weather-related job disruptions, falling well below consensus estimates of around 310,000 and slightly below our target range of 270,000-300,000.

On Friday, the official US jobs data for October will be reported, and expectations for a sharp bounce-back from September’s weather-related negative reading are high.

The week ahead will be an exceptionally busy one in terms of key macroeconomic events and data releases. Most importantly, the US Federal Reserve, Bank of England, and Bank of Japan will be announcing their respective monetary policy decisions. These decisions will then be followed by the highly anticipated US jobs report at the end of the week.

While last week’s highly disappointing US non-farm payrolls release was generally discounted by the markets due to the expected impact of two hurricanes that negatively affected US job growth in September, greater-than-expected wage growth and a lower unemployment rate were significant bright spots in the data. With respect to wage growth, a key indicator of inflation, average hourly earnings jumped up +0.5% in September against both a prior consensus forecast of +0.3% as well as the previous month’s +0.2% revised reading. This surprisingly elevated wage growth data is likely to play a role in boosting the prospects for a December interest rate hike by the Federal Reserve. The current week features more US economic releases that will also play a key role in helping to set the tone for both Fed policy and the US dollar going forward.

Due to this rise in Fed expectations, the US dollar extended its recent recovery and gold continued to fall in the immediate aftermath of Friday’s employment release. While these market moves soon reversed, however, the dollar remains supported and gold remains pressured on both the prospect of a near-term rate hike in December as well as the possibility that a more hawkish Federal Reserve Chair will be nominated by the Trump Administration and appointed after current Chair Janet Yellen’s term expires in February.

Overall, the jobs report for September was mixed, with substantial deviations from expectations in both directions. Since a significant impact from the hurricanes had already been expected, however, the decline in jobs was seen more as an anomaly rather than any negative indication of the US employment landscape.

On Friday, the new jobs data for September will be reported, and due to the substantially adverse effect of recent hurricanes (Harvey and Irma) on the US economy, it is widely expected that September’s job growth was negatively impacted.

Ahead of the Reserve Bank of Australia’s interest rate decision and monetary policy statement due to be released on Tuesday in Sydney, the Australian dollar continues to be weighed down against a still-rallying and recovering US dollar. Expectations for any interest rate changes by the RBA from the current record low of 1.50% remain very slim, as RBA Governor Philip Lowe stated in August that: "the next rate move will be up, rather than down, but it will not be for some time."

The calendar heats up in the week ahead for the start of October and the fourth quarter with major scheduled events and releases that are highly likely to make a substantial market impact, particularly on the currency markets. Anchoring the week’s calendar will be the heavily anticipated rate decision by the Reserve Bank of Australia, both the US and Canadian monthly jobs reports for September, and key purchasing managers’ index (PMI) data for the US and UK.

The headline non-farm payrolls data for July, released on Friday morning, substantially exceeded expectations at 209,000 non-farm jobs added against prior expectations of around 180,000. In addition, June’s number was revised up from the originally-reported 222,000 to 231,000.