- USD may continue falling as traders rule out likelihood of a tightening happening soon
- High yielding currencies will continue to find a solid amount of buyers
- Should US data continue to come in on the soft side, a December rate hike may also be off the cards
The latest US jobs report came in on the soft side, dampening prospects of a September interest rate hike from the Federal Reserve. The US economy created 151k nonfarm jobs in August and missed the median forecast of 180k. The previous month’s reading was however revised to 275k from 255k first estimate. Immediately following the report, equities across the globe surged sharply, with futures on the S&P 500 jumping as much as 0.70% as traders ruled out any monetary policy tightening in the near future. At opening, the blue chip index jumped 0.31% to 2,177.50 before stabilizing at around 2,180. Separately, the unemployment rate was left unchanged at 4.9% (versus 4.8% median forecast and 4.9% in July). Average hourly earnings rose 2.4%y/y (versus 2.5% expected and an upwardly revised figure of 2.7% in July). Finally, the participation rate remained unchanged at 62.8%.
In the FX market, the US dollar was heavily sold-off amid the release of the report but quickly returned to its pre-NFP levels. EUR/USD rose 0.55% and hit 1.1252 before falling to around 1.1160 as US treasury yields held ground.
In this environment, high yielding currencies found a solid footing as the chase for yields continues. The New Zealand dollar was in great demand with NZD/USD rising 0.64% in Sydney. Similarly, the Australian dollar extended gains against the greenback, surging more than 0.80% against the USD dollar, up to 0.76. High yielding currencies will likely find a decent amount of buyers as traders begin to slowly price out an interest rate hike in September. Moreover, should US data continue to come in on the soft side, a December rate hike may also be off the cards.
Asian equities were broadly trading in positive territory on Monday. In Japan, the Nikkei and the broader Topix indices were up 0.66% and 0.23% respectively. On the continent, the Shanghai and Shenzhen Composites rose 0.12% and 0.48% respectively, while offshore, Hong Kong’s Hang Seng was up 1.65%. In Australia, the ASX was up 1.06%, while in New Zealand, the NZX surged 0.90%. Finally, in Europe, even though futures were blinking green, buyers were shy. Futures on the Euro Stoxx 50 were up 0.29%, while those on the DAX rose 0.42%. Only futures on the Footsie were blinking red, down 0.12%.
Today traders will be watching: The inflation report from Turkey and Russia; composite and service PMIs from Spain, Italy, France, Germany, UK and Brazil; industrial production from Sweden; retail sales from the euro zone