FX Daily Strategy: Asia, Aug 5
June Labor Cash Earning Critical for BoJ
So as NZ Wage Growth
U.S. July ADP Employment suggests some slowing
ISM Services Keeping to a tight range
The June labor cash earning will be critical for the BoJ as market participants mount their rate hike expectation. We continue to forecast stronger than 2% wage growth as the potential B2B energy spillover seems to remain masked by broad energy stimulus. The BoJ may gained confidence from the report if growth remain above 3% and hinted likelihood to hike before year end 2026.
On the chart, USD/JPY turned up from the 155.23 low as prices unwind oversold intraday studies to consolidate above the 157.00 level. Above here see strong resistance at the 158.00 congestion and previous channel support. Would take break here to pen up room for stronger bounce to resistance at the 159.00/159.45 congestion and January high. Meanwhile, support is raised to the 157.00/156.00 congestion area. Break of these will expose the 155.23 low to retest and see room for extension to 154.85 Fibonacci level and 154.00 congestion.
So as the Q2 wage price index for NZ. RBNZ has tilted more hawkish in the last meeting but will require more demand push, rather than energy spike to justify their tightening. Inflation has already overshot target range but wage growth is lagging, with most only expecting a 2% y/y growth in Q2.
On the chart, limited on break above .5900 level as prices settled back to consolidate strong gains from the .5762 low. Intraday studies are unwinding overbought readings and see room to support at the .5850 congestion. Below here will open up room for deeper correction to the support at the .5815/.5800, May low and congestion area. Positive weekly studies suggest room for further gains going forward, above the .5900 level will see scope to target the .5930/50 congestion area with potential seen for extension to retest the .5995, May high.
We expect a 65k increase in July’s ADP estimate for private sector employment, which is well below our forecast for July’s private sector non-farm payroll of 110k (we expect overall payrolls to rise by 120k). It is however similar to June’s non-farm payroll, which rose by 57k and 49k in the private sector.
In June the ADP employment report increased by 98k, outperforming private sector payrolls by 49k. In July we expect private sector payrolls to outperform the ADP report by 45k. Our ADP forecast is consistent with weekly ADP data in the weeks to July 11, the week before the payroll survey week, which shows a 4-week average weekly gain of 15k.
We expect a July ISM services index of 54.5, returning to May’s level after a dip to 54.0 in June. The index has been in a tight range since December, apart from a brief bounce to 56.1 in February. The S and P services PMI saw quite a strong bounce in July to 53.6 from 51.2 but is not well correlated with the ISM services index which it appears to be catching up with.