Soft Payrolls Expected: Risk FX powers up, dollar eases

Kiwi, Loonie Outperform, Asians, EMFX Flat, Stocks Gain

Summary – Risk appetite powered up, and the US Dollar eased as markets anticipated a soft NFP report later today. Analysts expect US Non-Farms Payrolls to fall to between 720,000 to 750,000 jobs created in August from July’s 943,000. On Wednesday the ADP (private payrolls) underwhelmed, with a 374,000 print against median expectations of 640,000. A soft Payrolls number could force the Fed to extend its accommodative monetary policy and delay tapering. The Kiwi (NZD/USD) outperformed its peers, soaring 0.67% to 0.7113 from 0.7070 yesterday. The Dollar Index which measures the value of the Greenback against a basket of 6 major currencies, eased 0.24% to 92.23 (92.65). Risk FX leader, the Australian Dollar charged higher to 0.7402 from 0.7368. The US Dollar slumped against the Canadian Dollar to 1.2550 (1.2617). A rally in Brent Crude Oil prices to USD 72.84 (USD 71.34) boosted the Canadian Loonie. The Euro gained 0.29% against the Greenback (EUR/USD) to 1.1875 (1.1840) while Sterling advanced to 1.3835 from 1.3770, up 0.45%. USD/JPY dipped to 109.95 from 110.02. Asian and EM currencies were mixed against the Greenback. The USD/SGD (US Dollar- Singapore Dollar) pair slid to 1.3425, near two-month lows from 1.3447 yesterday. Against the Thai Baht, the US Dollar settled higher at 32.50 (32.32). USD/CNH (Dollar-Offshore Chinese Yuan) was little changed at 6.4500 (6.4520).
Global bond yields dipped. The benchmark US 10-year Treasury yield was last at 1.28% from 1.29% yesterday. Germany’s 10-year Bund rate settled at -0.39% from -0.38%.
Wall Street stocks rallied. The DOW gained 0.40% to 35,450 (35,422) while the S&P 500 climbed 0.29% higher to 4,537 (4,525).
Data released yesterday saw New Zealand’s Q2 Terms of Trade rise 3.3% from 2.5% in Q1. Japan’s Foreign Bond Investment jumped to +JPY 25.3 billion from a previous -JPY 183 billion. Australia’s July Home Loans beat estimates at -0.4% against -2.0%. Australia’s Trade Surplus improved to +AUD 12.11 billion in July from an upward revised +AUD 11.1 billion in June. Switzerland’s August CPI rose m/m 0.2% from -0.1%, higher than estimates at -0.1%. Swiss July Retail Sales fell to -2.6% in August from +0.1% previously. Swiss Q2 GDP rose to 1.8% from -0.5% in Q1 but missed forecasts at 2%. US July Trade deficit improved to -USD 70.1 billion from June’s -USD 75.7 billion, bettering expectations at -USD 71.0 billion. US Unemployment Claims eased to 340,000 in the latest week from 353,000 previously, bettering forecasts at 345,000. Finally, Canada’s July Building Permits slid to -3.9% from June’s +6.9%, underwhelming estimates at +0.3%.

• AUD/USD – The Aussie Battler powered on, rallying above the 0.74 cent mark to finish at 0.7404 (0.7368 yesterday). The market’s risk-on stance supported the Australian Dollar which hit an overnight high at 0.7409 before easing in late New York.
• NZD/USD – New Zealand’s Kiwi kept its wings and soared 0.67% against the Greenback to finish at 0.7113 (0.7070). An improvement in New Zealand’s Terms of Trade in Q2 to 3.3% from Q1’s 0.1% and forecasts at 0.3% were boosted the Kiwi. Overnight high was at 0.7120.
• EUR/USD – the shared currency advanced to 1.1875 at the New York close from 1.1840 yesterday. The Euro traded to an overnight and near one month high at 1.1876 before easing at the close of trade.
• USD/CAD – Against the Canadian Loonie, the Greenback slumped to 1.2550 from yesterday’s opening of 1.2617. The USD/CAD pair hit an overnight high at 1.2638. Brent Crude Oil rose 1.73% to USD 72.84 which boosted the Canadian Dollar.

On the Lookout: Before the US Payrolls report, economic data releases today kicked off with Australia’s August AIG Construction Index which eased to 38.4 from 48.7. Australia’s Markit Services PMI in August slipped to 42.9 from 44.2. Australia’s July Retail Sales follows (m/m f/c -1.9% from -2.7% previously). Japan releases its Jibun Bank Final Services PMI for August (no f/c given, previous was 47.4. China releases its August Caixin Services PMI (f/c 52.6 from 54.9). Europe starts off with Italy’s Services PMI for August (f/c 58.5 from 58.0). French Final Services PMI follow (f/c 56.4 from 56.4). Germany is next with its August Services PMI (f/c 61.5 from 61.5). Next up is the Eurozone August Services PMI (f/c 59.7 from 59.7). The UK releases its August Final Services PMI (f/c 55.5 from 55.5). Eurozone July Retail Sales is next (m/m f/c 0.1% from 0.5%, y/y f/c 4.8% from 5.0% - ACY Finlogix). The US releases its August Non-Farms Payrolls Change (f/c 750,000 from 943,000 – ACY Finlogix), US August Unemployment Rate (f/c 5.2% from 5.4%). US Average Hourly Earnings (Wages) follow (m/m f/c 0.3% from 0.4%, y/y 4% from 4%). Finally, US August Markit Services PMI (f/c 55.2 from 55.2) and US ISM Non-Manufacturing PMI for August (f/c 61.5 from 64.1) round up the day’s reports.

Trading Perspective: Ahead of the US Payrolls report expect the markets to trade in familiar ranges with an overall softer US Dollar. Revisions on US Payrolls number are on the weaker side following Wednesday’s unexpected drop in ADP (Private) Jobs created. The risk then lies with a stronger than forecast result. Its all about the NFP number. Median forecasts are now for a 720,000 to 750,000 Payrolls gain in August from July’s 943,000. The Jobless rate is expected to ease to 5.2% from 5.4%. Wages are expected to dip to 0.3% from 0.4%. The risk then lies in a more robust NFP report. A Payrolls number of above 800,000 will see the Greenback spike higher. Any number below 700,000 will see the Greenback tumble further. Whatever the result, expect FX volatility to pick up. Happy days!

• AUD/USD – the Australian Dollar powered on to finish above the 0.7400 mark for the first time since early August. Since then, the Aussie tumbled to a low just above 0.71 cents two weeks ago. Overnight the AUD/USD pair traded to a high at 0.7409. Immediate resistance lies at 0.7420 followed by 0.7450. We can find immediate support at 0.7385, 0.7355 and 0.7325. Ahead of tonight’s number, look for consolidation between 0.7350-0.7420. Tin helmets on for this currency pair. Am not convinced the Aussie’s downside is over with.

(Source: Finlogix.com)

• EUR/USD – The shared currency rallied on the back of the broadly based weaker US Dollar. Overnight, the Euro traded to a peak at 1.1876, near one -month highs. EUR/USD closed at 1.1875 just a pip lower than where it finished. Immediate resistance lies at 1.1880 followed by 1.1910. The Euro has immediate support at 1.1840 followed by 1.1810. Overnight low traded was 1.1834. European and Eurozone Services PMIs for August are released today. It will be the US Payrolls report that will move the shared currency. Likely range ahead of tonight’s number, 1.1830 – 1.1910. At current levels, prefer to sell into strength.
• NZD/USD – The Kiwi finished as best performing currency overnight, soaring to 0.7120 highs before settling in late New York at 0.7113 (0.7070 yesterday). NZD/USD has immediate resistance at 0.7120 followed by 0.7150. Immediate support lies at 0.7060 followed by 0.7030. Ahead of the US NFP report, look for the Kiwi to consolidate in a likely 0.7070-0.7120 range today. Am not getting bulled up on the Kiwi at these levels just yet. Only a much weaker NFP report, and Greenback will change that.
• GBP/USD – Sterling rallied 0.45% against the overall weaker Greenback to a 1.3835 New York close from 1.3770 yesterday. Overnight high traded for the GBP/USD pair was at 1.3840. Immediate resistance for today lies at 1.3860 followed by 1.3890. Immediate support can be found at 1.3800, 1.3770 and 1.3740. The overnight low traded was at 1.3767. A stronger than expected US Payrolls number could see Sterling pounded lower to the low 1.37, high 1.36 levels. Anything weaker than the lowest of the forecasts will see further Sterling strength. Meantime looking to trade a likely range of 1.3770-1.3850.

Its Payrolls Friday again! Stay nimble and keep your tin helmets on. Happy trading all.