- US job report failed to wake up dollar bulls as the Federal Reserve’s dovish stance continues to weigh on traders’ minds
- Aussie may remain under heavy selling pressure after disappointing retail sales and renewed sell-off in commodity prices
- WTI nearest support at $35.96 will most likely hold as nothing has really changed on the fundamental side
Last week’s strong job report from the US failed to provide a fresh boost to the greenback as market participants focus on inflation data and global financial market developments, mimicking the Fed’s behaviour. Data released on Friday showed that the US economy created 215k private jobs during the month of March, beating median forecasts of 205k, while the previous month’s figure was revised to 245k from 242k. The unemployment rate rose to 5% from 4.9% in February (4.9% consensus) as the participation rate rose to 63% from 62.9%. Finally, average hourly earnings rose 2.3%y/y in February, beating the market consensus of 2.2%, while the previous month’s figure was revised to the upside, from 2.2% to 2.3%. All in all, the job report failed to wake up dollar bulls as the Fed’s dovish stance continues to weigh on traders’ minds. On Friday, EUR/USD fell 0.80% to 1.1335 after the release of the NFPs but quickly reversed losses before stabilising at around 1.14. The pound sterling reacted more or less in the same way losing roughly 1% against the US dollar but unlike the EUR, the GBP was unable to reverse losses. GBP/USD consolidated at around 1.4225 after hitting 1.4171 on Friday as the threat of Brexit continues to loom.
Peter Rosenstreich, market analyst: “Limited USD upside on hike expectations: Asian regional equity markets were broadly strong in thin trading following Friday’s solid US payroll report. FX trading was choppy today with JPY gaining (sending Nikkei -.25% lower) against the USD, yet high beta currencies improved. Equity markets in China and Hong Kong are closed today for holiday. On Friday, March US labor reports came in at 215k (marginally higher than expectations), while data showed steady wage growth and significant increase in labor force participation which initially had traders pricing in a higher potential for an interest rate hike in June. Elsewhere, manufacturing PMI unexpectedly surprised to the upside as the global outlook, led by China, improved. The firm US data helped USD marginally rally yet demand quickly faded. Importantly, US front-end yields failed to adjust to the stronger US data, indicating that the markets remain unconvinced about a June hike. We remain slightly confident that the Fed will not hike rates in June, suggesting that the currency rally in emerging markets (search for high yields) and commodity linked currencies should continue. We favor long positions in ZAR, MXN, BRL, KRW, against JPY and USD. We suspect that Chair Yellen's dovish communication still represents the dominant feeling within the Fed, international conditions remain soft (distinct downside risks) and the pace of domestic inflation is no immediate threat (despite US economy remains on track). This week, March FOMC meeting minutes are scheduled to be released, which should echo Yellen’s cautious tone. Traders will be focused on member’s emphasis on international developments and external risk factors, which should support Yellen’s vigilant stance. Barring a catalyst from Europe there is no fundamental justification for a sustained USD rally at this point as the market is over positioned for a Fed June rate hike. That said the conflicting communications from the Fed makes deciphering the message more complex and will likely drive volatility.”—
In Australia, the local currency was under heavy selling pressure after disappointing retail sales and a renewed sell-off in commodity prices. Retail sales printed at 0.0%m/m for the month of February, well below consensus of 0.4% and the previous month’s reading of 0.3%. The Aussie fell 0.70% against the US dollar and hit 0.7615 as WTI slipped to $36.35, down another 1.25%. The nearest support, which can be found at $35.96 (low from March 15th), will most likely hold as nothing has really changed on the fundamentals side. Similarly, the Brent crude was off 0.95% in Asia and reached $38.30 a barrel.
In the commodity complex, gold fell 0.37% and silver slipped 0.34%, while palladium was off almost 1%. Copper futures on the COMEX were also trading lower, down 0.53% to 2.15$/lbs. Natural gas was up 1.40%. In such an environment, most commodity currencies were trading lower. USD/CAD rose 0.43%, NZD/USD was off 0.54%, while the USD/NOK slid 0.15%.
Stocks were broadly higher in Asia with the MSCI Asia Apex index up 0.25%. Japanese equities were mixed on Monday, with the Nikkei down 0.25% and the Topix index up 0.10%. Chinese markets were closed due to Ching Ming Festival. In New Zealnd stocks were up 0.53%, in Australia the S&P/ASX edged down 0.08%, while in Singapore the STI surged 0.45%. European equity futures are pointing to a lower open with the Footsie down 0.13%, the DAX -0.26% and the SMI -0.21%. US futures are blinking green on the screen with the S&P 500 up 0.04% and the Dow Jones up 0.90%.
Today traders will be watching the unemployment rate from Denmark; CPI and PPI report from Turkey; Markit/CIPS construction PMI from the UK; factory orders, durable goods orders and Fed member Rosengren's speech from the US.