Currency Market Analysis

Sep 04, 2015 | Currency Market Analysis

Global Themes

American football quarterbacks will be hiking in September but will the nation’s central bank? For clues to that important answer, markets will look to today’s U.S. employment report for August. Pre-jobs trepidation weighed on market sentiment, giving the yen a safe haven boost to its highest in a week against the dollar. America’s currency also eased off two-week highs against the European Central Banks (ECB)-sullied euro. In spite of the crazy market swings last month and heightened worries over the health of the world’s No. 2 economy, the world’s biggest economy likely netted around 220,000 jobs, which is expected to pull unemployment down a tick to a near-healthy 5.2 percent. An upside surprise would open the door wider to a Fed rate hike on Sept. 17. An underwhelming outcome would risk tackling the dollar as it would signal a delay of game for a rate hike. Canada today will release loonie-impacting jobs data.


The euro fared a little better after getting slammed the day before to its weakest in two weeks. The specter of more stimulus from the euro zone and less from the U.S. is back in vogue, buoying the dollar and weighing on the euro. The ECB stepped up its dovishness by downgrading its outlook for growth and inflation, acknowledging greater risks to the economy from a weaker global economy and an inflation-negative slide in commodities. Fundamentals should put a heavier weight on the euro. But if Chinese stocks return next week and take a fresh plunge, the euro would stand to benefit as market appetite for risk would wane, boosting low-yielders.


Paying sterling-denominated invoices continued to grow in affordability as the pound slid to three-month lows. Numbers this week from Britain suggested the economy has downshifted in the current quarter, pointing to a prolonged period of record low interest rates, weighing on the pound. Britain’s central bank meets on Sept. 10 but isn’t expected to alter its key rate until next year.


The Aussie dollar’s downturn gathered pace today, knocking the Antipodean unit to its weakest level since April 2009. China’s slowing economy is starting to wash up on Australian shores, as evidenced by a sharp slowdown in second quarter growth and a surprise fall in consumer spending, disappointing data that kept alive expectations that the Reserve Bank may need to slash rates from 2.0 percent.


Surprisingly resilient news for the recently under fire Canadian economy largely fell on deaf ears as surprise job gains north of the border got outshined by America’s employment report. Following news this week of a smaller Q2 contraction and a narrower trade gap, data today showed Canada unexpectedly added 12,000 jobs in August, all full-time hires, too, the more meaningful ones. Consequently, the Bank of Canada (BOC) seems less likely to drop rates when it meets on Sept. 9, a view that should help slow the loonie’s decent.


The dollar firmed after a mixed jobs report seemingly did more to help rather than hurt the case for an imminent Fed rate hike. Non-farm payrolls underwhelmed with a 173,000 rise in August, the fewest in five months and under forecasts of 220,000. But revised data showed stronger hiring in June and July. Unemployment improved two notches to 5.1 percent, the lowest in seven years. Wage growth topped expectations with a 0.3 percent gain. Though mixed, the jobs report was consistent with the economy gaining steam which should soon compel the Fed to raise rates, buoying the dollar’s prospects.

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