Global Themes

The U.S. dollar drifted higher in holiday-subdued trade with markets in Japan enjoying a day off. The dollar has largely taken to consolidating its late October rally in the run up to Friday’s U.S. jobs report, considered a key puzzle piece to the outlook for American interest rates. Central banks last month set the dollar on a path higher after the ECB sounded amenable to stronger stimulus while the Federal Reserve lowered the bar to a rate hike. That’s where Friday’s U.S. jobs report comes into critical focus. The Fed will only get to sample a limited amount of data before it decides whether to raise interest rates at its next meeting in mid-December, causing reports like Friday’s nonfarm payrolls and unemployment to take on heightened importance. Faster hiring after slowing in recent months would keep the bar in reach of a Fed rate hike, buoying the dollar. Another subpar jobs report would risk undercutting the dollar’s latest rise.

AUD

The Aussie dollar initially gained 1 percent and hit one-week highs after the nation’s central bank held fire on a rate cut from 2.0 percent. The Aussie caught an outsized bounce with markets thinner due to a holiday in Japan and how more than a handful had bet on a rate cut given uncertainty stemming from China. The RBA kept the door open to a rate cut, citing low inflation with core prices near 2 percent, the bottom of the bank’s 2-3 percent comfort zone. The RBA has one more meeting this year on Dec. 1.

EUR

The euro drifted lower as three days of gains and bearish sentiment proved a cocktail to sell the single currency. The euro firmed Monday after area PMI surveys hinted at stabilization. Nevertheless, the still weak shape of the bloc’s economy keeps the heat on the ECB to ramp up stimulus at its next meeting in early December.

GBP

Sterling slipped as elation subsided over news this week that U.K. manufacturing proved the strongest in more than a year. Pound subduing caution also kicked in ahead of daunting risk events over the balance of the week: Influential services growth tomorrow, the Bank of England’s ‘Super Thursday’ and critical factory news Friday. Super Thursday refers to the BOE’s trio of news on interest rates, the outlook for growth and inflation and central bank minutes. What this week’s events suggest about the timing of a U.K. rate hike will help set the coming tone for sterling.

CAD

The loonie softened on the eve of critical trade data from Canada and ahead of key jobs data Friday from both sides of the border. Canada is forecast to log a still bloated monthly trade gap of C$1.9 billion in September compared to the C$2.5 billion shortfall in August.

USD

The dollar firmed but could struggle to sustain gains ahead of Friday’s U.S. jobs report which markets think could have a significant say on whether the Fed raises rates before year-end. U.S. factory orders, due today at 10 a.m. ET, are forecast to fall for a second straight month, albeit at a slower rate of 0.9 percent in September after a 1.7 percent plunge in August. Any improvement could clear a hurdle to a Fed rate hike and support the buck.