Currency Market Analysis

Oct 05, 2015 | Currency Market Analysis

Global Themes

The dollar kept in the red against most peers after subdued hiring over the past two months hinted at a crack in America’s economic foundation. The dollar’s latest leg lower stems from news Friday of decidedly weaker U.S. hiring in August and September. The news raised concerns about weaker global growth having an impact on the world’s biggest economy which could potentially torpedo a rate hike this year by the Federal Reserve. America’s economy added 142,000 jobs in September and even fewer in August compared to average monthly job gains this year of nearly of 200,000. The dollar will next take its cues from data on U.S. services growth, which comes due today, and remarks from Fed officials on Tuesday, Thursday and Friday. Also important will be Fed minutes Thursday whose tone could hint at the timing of a Fed rate hike.


The euro held firm against the dollar, capitalizing on America’s surprise downshift in hiring which dampened expectations for a Fed rate hike anytime soon. The euro, though, was below its post-U.S. payrolls peak hit Friday, underscoring how few expect the euro to gain meaningful traction, given its central bank’s easy bias.


Sterling squandered a 10-day high against the dollar after the most important cog in the U.K. economy grew at the weakest rate in two year. Britain’s services industry PMI fell to 53.3 in September, the weakest since April 2013, from 55.6 in August. Coupled with low U.K. inflation, the disappointing data cemented expectations the Bank of England wouldn’t raise interest rates when it renders its next decision Thursday or anytime over the foreseeable future, weighing on the pound.


The specter of U.S. interest rates remaining low for longer has been a boon for assets with the juiciest yield potential like stocks and the Aussie and kiwi dollars, the developed world’s top two yielders. Neither Antipodean currency was out of the woods, however, and could tumble anew should forthcoming news from China show more fragility which would bode negatively for economies with close trade ties to the world’s No. 2 economy.


Canada’s dollar rose to two-week peaks against its U.S. counterpart after subdued hiring south of the border raised questions about America’s economic durability and made for a more uncertain outlook for U.S. interest rates. Loonie buyers have long enjoyed a favorable market with the Canadian unit recently clocking 11-year lows. USD buyers, on the other hand, have stumbled upon the best opportunity in a while to take cover. Key for the loonie’s coming direction will be trade data Tuesday and employment on Friday.


The degree to which slower hiring may have torpedoed a Fed rate hike this year will be crucial for the dollar’s short run course. The market will glean Fed rate hike clues in U.S. services growth data today, due at 10 a.m. ET, and remarks this week by Fed officials.

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