Fed November Taper on Track Despite Mediocre Payrolls

  • Michael Moran, Senior Currency Strategist at ACY

  • 11.10.2021 10:15 am
  • #stock

Summary: US September Non-Farms Payrolls disappointed with a mediocre Jobs creation number of +194,000, way below median expectations of 500,000. However, the Unemployment rate fell to 4.8% from 5.2% in August, due to reduced participation. And the August Jobs number was revised upwards to 360,000 from 235,000. At the end of the day, the Dollar Index (USD/DXY) which measures the value of the Greenback against a basket of 6 major currencies, was mildly lower to 94.10 (94.20 Friday). Canada’s employment report in September showed a strong gain of 157,100 jobs, bettering median forecasts by almost 3 times (60,000 jobs), and August’s 90,200. The Canadian Loonie outperformed, with the USD/CAD pair tumbling 0.77% to 1.2470 (1.2547 Friday). Sterling finished a choppy session little changed at 1.3615 from 1.3618. Overnight the British currency hit a high at 1.3665 before easing in late New York. The Euro grinded higher against the Greenback to finish at 1.1575 from 1.1555 on Friday. Meantime, the Australian Dollar eased to 0.7309 from 0.7312 while the Kiwi (NZD/USD) was last at 0.6927 (0.6933). USD/JPY rallied to 112.25 from 111.62 on the back of higher US bond yields. The Greenback dipped against the Asian and Emerging Market currencies. Against the Singapore Dollar, the US Dollar slid to 1.3545 from 1.3582 on Friday. The USD/THB pair (Dollar vs Thai Baht) though edged higher to 33.86 (33.80). Against the Offshore Chinese Yuan, the Greenback eased to 6.4460 from 6.4525. Wall Street stocks dipped ahead of a long US and Canadian weekend due to holidays (Columbus Day and Thanksgiving Day respectively). Global bond yields were mostly higher. The benchmark US 10-year treasury yield rose 4 basis points to 1.61% (1.57%). Germany’s 10-year Bund rate climbed to -0.15% from -0.19%. Japanese 10-year JGB yields were up 2 basis points to 0.08%.
Other global central banks have started to taper (Bank of Canada), or plan to do so soon. However, policies on the timing of raising rates differ.
Data released on Friday saw Japan’s September Household Spending (m/m) fall to -3.0% from 0.7%, missing forecasts at 1.5%. Japan’s Current Account Surplus in August fell to +JPY 1.04 trillion from +JPY 1.910 trillion, missing forecasts at +JPY 1.54 trillion. Japan’s September Economic Watchers Sentiment rose to 42.1 from 34.7 in August, missing expectations at 43.4. China’s Caixin Services PMI in September rose to 53.4 from 46.7, missing estimates at 49.3. Germany’s August Trade Surplus eased to +EUR 13.0 billion, against median forecasts at +EUR 15.7 billion. Canada’s September Unemployment Rate matched forecasts at 6.9%. US September monthly Average Hourly Earnings (Wages) rose to 0.6%, higher than estimates of 0.4%.

  • EUR/USD – The shared currency rallied modestly against the Greenback to finish at 1.1575 from Friday’s opening at 1.1555. EUR/USD hit an overnight high at 1.1586 before easing to its New York close. Overnight low traded was at 1.1541.
  • USD/JPY – against the Japanese Yen, the Greenback climbed to finish at 112.25 from 111.62 on Friday. The rise in the US 10-year bond yield of 4-basis points (1.61%) was higher than the 2-basis point rise in Japanese 10-year JGB rates (0.08%). Japan’s Household Spending and Current Account data also missed estimates.
  • AUD/USD – the Australian Dollar settled a touch lower against the US Dollar to 0.7309 from 0.7312. Overnight the Aussie Battler soared to 0.7338, a near 3-week peak before easing to its New York close. The overnight low traded was at 0.7288.
  • USD/CAD – The Canadian Loonie emerged as best performing currency after a stellar Canadian Payrolls report. This contrasted with that of its larger southern neighbour, the USA. The USD/CAD pair finished at 1.2470 from 1.2547 on Friday. A week ago the USD/CAD hit a high at 1.2739.

On the Lookout: Markets start off today on a slow note given the US and Canadian holidays. The economic calendar is also light. Japan kicks off Asia with its September Annual Machine Tool Orders (no f/c, previous was 86.2%). China will release their September foreign Direct Investment (no f/c, previous was 22.3%), September New Loans (f/c JPY 1850 billion from previous JPY 1220 billion – FX Street). Italy reports its August Industrial Production (m/m f/c -0.7% from 7.0%, y/y f/c -0.3% from 0.8% - ACY Finlogix). Finally, the UK releases its September NIESR GDR (National Institute of Social Research Estimate – growth over the last 3 months) (3M) (f/c 3.2% from previous 2.4% - FX Street).

Trading Perspective: Despite the mediocre US Payrolls report, the Dollar was only modestly lower against most of the other currencies. The revision in the August jobs creation number by over 50% is enough to allow the Fed to start tapering its bond purchases next month. The Dollar’s rally which extended into September is running out of steam. Speculators may be losing patience with their US Dollar long bets, and the risk is lower. A consolidative corrective phase for the Greenback is most likely.

  • EUR/USD – the shared currency struggled to gain versus the modestly weaker Greenback, finishing at 1.1575 from 1.1555. Overnight the EUR/USD traded to a peak at 1.1586, still below the 1.1600 threshold despite the disappointing US jobs creation numbers. The Euro has immediate resistance at 1.1585 followed by 1.1605 and 1.1630. A sustained move above 1.1600 could see 1.1630 and 1.1650. Overnight low was at 1.1541. Last week the Euro hit a fresh 2021 low at 1.1529. In early Asia, the Euro is trading at 1.1570 and we can expect consolidation today between 1.1540-1.1610. Prepared to trade a range today with a breakout above 1.1610 possible.
  • AUD/USD – The Aussie settled in late New York trade at 0.7309 from its 0.7312 open on Friday. Speculative Aussie short bets drove the currency to an overnight high at 0.7338 before easing to its NY close. AUD/USD has immediate resistance at 0.7340 followed by 0.7380. Immediate support can be found at 0.7290 followed by 0.7260 and 0.7230. We may see further speculative short covering but prefer to sell rallies around current levels today. Likely range 0.7280-0.7350.
  • USD/JPY – The Dollar was strongest against the Japanese Yen finishing at 112.25, which is near 2-yer highs. USD/JPY was at 111.62 on Friday. Last week USD/JPY hit a low at 110.82. The four-basis point rally in the US 10-year bond yield to 1.61% boosted this currency pair. Japanese 10-year yields were up just 2 basis points (0.08%). For today, USD/JPY has immediate resistance at 112.30 followed by 112.70. The next resistance level lies at 113.10. Immediate support can be found at 111.90 followed by 111.60. USD/JPY closed on a bid note, near its highs. Interesting to see where Tokyo takes this today. Expecting consolidation likely between 111.70-112.40. Preference is to sell rallies.
  • USD/CAD – Against the Canadian Loonie, the US Dollar fell the most due to the contrasting US and Canadian Employment reports. USD/CAD finished at 1.2470 from 1.2547 on Friday. Against the volatile Loonie, the Greenback traded to a high at 1.2739 a week ago. Friday’s overnight low was at 1.2451. For today, we can find immediate support at 1.2450 followed by 1.2420. A break lower through 1.2420 could see the 1.2350-70 area. Immediate resistance lies at 1.2500, 1.2530 and 1.2560 (overnight high traded was 1.2562). Look for consolidation in Asia in a likely range today between 1.2440-1.2540 today. Content to trade this range, expect more choppy trading sessions ahead for the Loonie. Happy days!


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