Following a week of continuous large ranges, which have not been seen for quite some time, rand traders have shifted their focus to the US jobs data, expected to be released at 14:30.
"The main action is at 2.30pm, when US non-farm payrolls and average earnings come out," said Adam Phillips of Umkhulu Consulting, in his note to clients on Friday.
Numbers of 190 000 and 0.2% are expected, but economists have found it hard to forecast these numbers in previous months, he said.
"Therefore, expect the yo-yo effect to keep going this afternoon."
Barry Dumas of GT247.com explains what these numbers are, and why they are important for South Africa.
US Non-Farm Payroll release
Non-farm payrolls are usually reported on the first Friday of the month, whereby the number of additional jobs added from the previous month are released. The US non-farm payrolls number for the month of May will be released locally on Friday, 1 June at 14:30.
Why is the jobs number important?
The non-farm payrolls report (NFP) is treated as an economic indicator for people employed during the previous month, and the number being released will have a direct impact on the markets.
If the jobs report beats expectations, the US dollar will strengthen anew, resulting in weak emerging market currencies, including the rand.
In the United States, consumer spending accounts for most of the economic activity, and the non-farm payroll is an indicator of the economy's health. The NFP report represents 80% of the US workforce. Farmers are excluded from the employment figures due to seasonality in farm jobs.
The average hourly earnings (M/M) number, which form a part of the report, measures the change in earnings a business or company will pay for labour on a monthly basis. This number is important because an increase in earnings will lead to consumers spending more, which will lead to raised inflation, and in turn will lead to interest rates being increased in the US. Again, this will draw funds away from emerging markets, as the higher yields offered in the US will be more attractive for investors.
What happened previously?
The non-farm payrolls number came out lower than expected, at 164 000 non-farm jobs against the 191 000 expected.
The average hourly earnings (M/M) decreased to 0.1%, and the US unemployment rate also decreased to 3.9% from the 4.0% market forecast.
What is forecast this time?
Economists expect an increase to 190 000 non-farm jobs created from 164 000 jobs in the previous month.
Take note: a higher-than-expected jobs number should be taken as bullish for the dollar (USD), while a lower-than-expected jobs number should be taken as bearish for the dollar.
The average hourly earnings (M/M) number is expected to increase to 0.2% from 0.1% in the previous month - this is a key figure to watch, and if this number disappoints, it will signal a weak wage inflation outlook in the US.
A higher-than-expected earnings number should be taken as bullish for the dollar, while a lower-than-expected earnings number should be taken as bearish for the dollar.
US unemployment rate
The US unemployment rate measures the percentage of the total work force that is unemployed and actively seeking employment during the previous month. In this data round, the US unemployment rate is expected to remain unchanged at 3.9%.
A higher-than-expected rate should be taken as bearish for the dollar, while a lower-than-expected reading should be taken as bullish for the dollar.
What to trade internationally:
- Major indices to look at will be the S&P 500, Wall Street 30 and the VIX;
- Major forex pairs to look at will be EUR/USD, GBP/USD and USD/JPY;
- Commodity to look at will be Gold.
What to trade locally:
- Index to look at will be the ALSI;
- Forex pair to look at will be the USD/ZAR;
- Rand Hedges British American Tobacco [JSE:BTI], Richemont [JSE:CFR] and rand sensitives (Banks and Insurers).
* Barry Dumas, is a Technical Analyst and Researcher at GT247.com, an online broker and authorised financial services provider.