Baystreet.ca - - US and Canada job data on tap
- Opec delays production increase.
- US dollar trading with bearish bias across the board.
USDCAD: open1.3493, overnight range 1.3486-1.3506, close 1.3502, WTI $69.53, Gold, $2519.09
The Canadian dollar rallied after weaker-than-expected US ADP (NASDAQ:ADP) employment change data yesterday, setting the stage for a volatile market reaction to today’s US nonfarm payrolls report.
Traders have decided that today’s nonfarm payrolls (NFP) data will dictate whether the Fed cuts rates by 25 or 50 basis points on September 18. Fed Chair Jerome Powell set the stage during his Jackson Hole speech, emphasizing the Fed’s focus on the labor market. Forecasts for today’s report are scattered, ranging from 115,000 to 175,000, hinting at a fast and furious FX reaction. The consensus expects 160,000 new jobs, up from last month’s 114,000, with the unemployment rate dipping to 4.2%.
Canada's job gains are expected to rebound to 22,500 following two months of negative and below-consensus reports. It won’t matter. The Bank of Canada has shifted its focus from inflation to boosting the economy. They’re concerned about sluggish economic growth, and a weak labor market is further evidence that monetary stimulus is needed. Today’s results will not prevent another 25 bp rate cut (to 4.00%) in October.
Oil prices may have found a short-term bottom after sliding from 69.69 to 68.92 overnight. The drop occurred even after the US Energy Information Administration reported that crude stocks fell by 6.84 million barrels last week, marking the third consecutive weekly drop. The slide halted when OPEC announced it would extend production cuts until the end of the year, instead of raising them on October 1 as previously planned.
EURUSD remained stable, fluctuating within a tight 1.1107-1.1121 range. The upcoming US employment report overshadowed another disappointing German Industrial Production result (-2.4% m/m versus the forecast of -0.2%), along with a reduced trade surplus.
GBPUSD traded with a slight downside bias, moving between 1.3160 and 1.3194. The 4.3% y/y rise in the Halifax House Price Index (forecast at 4.2%) had little impact, with traders waiting for the US employment data.
USDJPY fell from 143.49 to 142.06 following mixed signals from US employment data and the ISM services report. These results dragged the US 10-year Treasury yield lower, from 3.77% to 3.69%. Additional selling pressure came after comments from former BoJ Governor Haruhiko Kuroda, who suggested Japan's nominal neutral rate could be under 2%, with short-term rates possibly around 1.5% or lower. This leaves the BoJ with plenty of room for future rate hikes.
AUDUSD remained stuck in a range between 0.6719 and 0.6744. Comments earlier this week from RBA Governor Bullock—indicating inflation risks and the need for restrictive monetary policy—are providing support for the currency. If the Fed cuts rates by 50 basis points on September 18, AUDUSD could potentially climb to 0.6850.