The spotlight will be on the official US employment report for August today, which includes the closely-watched nonfarm payrolls and unemployment rate. The US Federal Reserve monitors the change in the payrolls data as it offers crucial insight into labour market dynamics and prospective price pressures. In July, job growth slowed sharply, with employers adding 114k jobs, down from 179k in the previous month, while recent revisions showed that the actual number of jobs created was well below what was previously reported. Economists surveyed by Bloomberg estimate that hiring increased in August, but given the recent revisions, the numbers will be looked at with some scepticism. Given flaws in the outdated BLS model, the actual number could be much lower than reported, and would be supportive of the Fed cutting rates in September to try and ease pressures on the economy and stabilise the labour market.
Other labour market data out of the US this week have certainly supported the argument for rate cuts. The JOLTS report fell short of expectations, showing the lowest level of job openings in more than three years. Additionally, the most recent ADP data underwhelmed, revealing a smaller-than-expected increase in private-sector jobs. While weekly jobless claims were roughly in line with forecasts, the broader trend of continuing claims has risen over the past two years. In summary, the US labour market is weakening, providing the Federal Reserve with a case to consider lowering interest rates sharply in the coming months. Monetary easing in the US is expected to be the catalyst for a deeper USD correction, given that it is still trading in overvalued territory. Moreover, lower interest rates should reignite a search for yield and support general risk appetite, all of which should lead to a stronger ZAR.