By Raiko Shareef

The USD fell to a fresh three-month low, after a disappointing ADP employment report further discouraged USD bulls, ahead of Friday’s official employment reports.

NZD is the only G10 currency weaker against the USD, thanks to slowing wage growth.

Despite its less-than-stellar record as a leading indicator of the subsequent non-farm payrolls report, the big headline miss in the ADP report heightened nervousness ahead of Friday.

USD bulls are no doubt hopeful of a strong bounce in payrolls, reflecting firm trends in initial jobless claims and other surveys. But at the same time, those investors are understandably reluctant to stand in the way of overwhelming momentum.

In particular, skyrocketing European bond yields, and the impact that is having on EUR, is a critical component of broader-based USD weakness.

German 10-year bund yields are up another 7 bps overnight. This, along with the US data disappointment, was enough to see EUR/USD snap through important resistance at the 100-day moving average (currently 1.1260). EUR sits 1.5% stronger for the day at 1.1350.

NZD holds the dubious honour of being the only G10 currency to weaken against the USD over the session, thanks to yesterday’s employment report.

Markets were not so much concerned the higher unemployment rate (largely driven by greater participation), as the softer wage pressures.

After the RBNZ clearly signalled falls in medium-term wage pressures would necessitate OCR cuts, the Labour Cost Index remained steady on an annual basis, as opposed to the expected rise.

This is yet another data point that suggests there is more slack in the economy than previously thought. Keep in mind though, the RBNZ signalled it wants to see prices and wages 'settle' at lower levels. It will take time for this to become evident. But investors are not waiting around to find out, and quite appropriately moved to price in a greater chance of rate cuts in 2015.

NZD is significantly weaker on the crosses, with a 2.3% decline against EUR particularly eye-opening. NZD/AUD continues to make headway lower, with important support at the 200-day moving average (0.9340) within striking distance. Momentum suggests some further downward movement, but we maintain that a broad 0.92 – 0.98 range will prevail through year-end.

Today, RBNZ Governor Wheeler gives a non-public speech, which should not be reported. After the Australian employment report is out of the way, we look toward results from the (very tight) UK general election, which should start dribbling in early tomorrow morning.

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