Strong US Jobs Report Sets Stage for Fed Hike

A strong US jobs report in August surprised markets, with nonfarm payrolls rising by 162k - more than triple the expected 55k. This is a significant turnaround from two weak months prior, and wage growth remains consistent with muted labour-market inflation pressure. The unemployment rate stayed at 4.1%, while average hourly earnings rose 0.3%.

The Federal Reserve meeting next week now appears finely balanced, with market pricing indicating a 60% chance of a rate hike - only marginally above pre-payrolls levels. Officials have stressed that inflation data will be the key input, but the strong employment report removes a potential argument against tightening. The US dollar's initial gains after the data quickly faded, and net moves across currencies were not large.

In related news, record US diesel prices rose to $5.85 a gallon due to ongoing energy-market pressures, while oil prices remained steady but sharply higher over last week. Brent crude held near $96 a barrel, up more than 7% over the week. The impact was also evident in refined fuel markets.

In New Zealand, fixed income had a subdued local session on Friday, with swap rates closing flat to 2bp higher across the curve. Pricing for the October RBNZ meeting remained stable near +8bp, with Assistant Governor Silk saying that a December hike is more likely than October.