Dollar slides, US core PCE softens, welcome to payrolls Friday
|Yen, Sterling, EMFX Soar; Aussie Climbs Over 0.6800
Summary
The Dollar Index (DXY), a favoured gauge of the Greenback’s value against a basket of 6 major currencies tumbled 1.15% to 104.72 (106) as speculative long bets extended their unwind.
A softening of the Federal Reserve’s primary inflation measure, the Core Personal Consumption Expenditure (PCE) to 0.2% from 0.5% in November weighed on the Greenback.
US bond yields tumbled led by the benchmark 10-year note, which settled at 3.53% from 3.61% yesterday. Other global bond rates were also lower, but the focus was on US rates.
Against the Japanese Yen, the US Dollar plummeted 1.53% lower to 135.25 in late New York from 138.04 yesterday. A Bank of Japan policymaker said the “BOJ could withdraw stimulus if underlying inflation perks up higher than expected.”
The Australian Dollar (AUD/USD) climbed above 0.68 cents to 0.6815 from yesterday’s open at 0.6787. The Aussie’s rally was more subdued due to a fall in Australia’s Private Capital Expenditure.
New Zealand’s Kiwi (NZD/USD) rallied to 0.6373 against yesterday’s 0.6302.
Short covering boosted the British Pound (GBP/USD) up to 1.2258 (1.2048). The Euro (EUR/USD) rocketed above the 1.0500 level to finish at 1.0518 in New York against 1.0402 yesterday.
The Greenback lost ground against the Asian and EMFX. The USD/THB (Dollar-Thai Baht) pair tumbled to 34.78 (35.13). The USD/CNH (Dollar-Offshore Chinese Yuan) eased to 7.04 (7.05).
Other economic data released yesterday saw Australia’s Q3 Private Capital Expenditure (CAPEX) fall to -0.6% from a previous -0.3%. Japan’s Final Manufacturing PMI eased to 49 from 49.4.
Germany’s November Retail Sales fell to -2.8%, larger than median estimates at -0.6%. U.S. Claims for Unemployment Benefits eased to 225,000 from a previous 241,000 and forecasts at 234,000. UK Final Manufacturing PMI beat forecasts, rising to 46.5 against 46.2.
The US ISM Manufacturing PMI dipped to 49.0 from a previous 50.2, and lower than expectations at 49.7. US Construction October Construction Spending fell to -0.3% from a previous 0.1%.
EUR/USD – The shared currency rebounded against the Greenback to finish above the 1.05 threshold for the first time since late June, to 1.0518 (1.0402). In volatile trade overnight, short-covering lifted the EUR/USD pair to a fresh 5-month high at 1.0534 before easing. Overnight low traded was at 1.0393.
USD/JPY – A fall in the benchmark US 10-year treasury bond yield to 3.53% from 3.61% contrasted with a flat finish to Japan’s 10-year JGB rate at 0.24%. Which weighed heavily on the USD/JPY pair, finishing at 135.25 against 138.04 yesterday. Overnight saw the Greenback plummet to a low at 135.21 before climbing to 135.35 in early Asia. Comments from a BOJ policymaker also lifted the Japanese currency.
GBP/USD – Sterling had its own impressive turnaround, spiking to an overnight and 3-month high at 1.2311 from yesterday’s 1.2048 before settling at 1.2258. The overnight low recorded was at 1.2070 in choppy trade. Better than expected UK Final Manufacturing PMI supported the British currency.
AUD/USD – The Aussie Battler rose modestly against the Greenback, finishing above the 0.6800 threshold level to 0.6815 from yesterday’s open at 0.6787. A short squeeze boosted the Aussie to an overnight and 2-month high of 0.6844. A lower than expected read in Australia’s Private CAPEX prevented the Aussie Battler from trading higher.
On the lookout
Welcome to another US Payrolls Friday. While the economic calendar today is light it will culminate with the US November Employment report. New Zealand kicked off earlier today with its Overseas Trade Index (q/q) which fell to -3.4% from a previous -2.3%, and lower than estimates at 0.4%. The Kiwi (NZD/USD) dipped to 0.6365 from 0.6375.
Australia follows with its October Final Retail Sales (m/m no f/c, previous was 0.6% - ACY Finlogix). Australia’s October Home Loans follows (m/m f/c -4.5% from -9.3% - ACY Finlogix).
RBA Governor Philip Lowe, RBNZ Governor Adrian Orr and ECB President Christine Lagarde are due to speak at the Bank of Thailand’s 80th Anniversary Conference in Bangkok (early afternoon Sydney time).
Bank of Japan Governor Haruhiko Kuroda is due to speak at an ASEAN online event (12.30 noon, Sydney time).
European data start off with Germany’s October Trade Balance (f/c +EUR 9.1 billion from +EUR 9 billion – ACY Finlogix).
France follows with its October Industrial Production report (m/m f/c -0.2% from -0.8% - ACY Finlogix).
The Eurozone releases its October PPI (m/m f/c -2% from 1.6%; y/y f/c 31.5% from 41.9%).
Canada kicks off North America with its November Employment Change (f/c -30K from +119.3K – ACY Finlogix), Canadian November Unemployment Rate (f/c 5.3% from 5.2% - ACY Finlogix).
The US rounds up today’s reports with its Non-Farms Payrolls (f/c 200K from 261K – ACY Finlogix), US November Unemployment Rate (f/c 3.7% from 3.7% - ACY Finlogix) and US Average Hourly Earnings (y/y f/c 0.3% from 0.4%).
Watch the Payrolls report. A NFP of less than 200,000 (say 190,000) will see more Dollar selling. An NFP figure of 230-250K will see the Greenback rebound strongly.
Wages will also be scrutinised, analysts expect an easing to 0.3% from 0.4%. An increase of more than 0.4% will see the Dollar take off.
Lastly the Unemployment Rate is forecast unchanged, at 3.7%. A rate higher, say at 3.8% could see further Greenback selling. While a lower US Jobless number would lift the US Dollar.
Trading perspective
The US Dollar has extended its corrective move lower overnight as we head into today’s US Payrolls report. Speculative long Dollar bets continued to unwind after less hawkish rhetoric from Fed officials and a lower US PCE report.
At the end of the day, the 8-basis point drop in the benchmark US 10-year bond yield was huge, weighing on the Greenback.
Economists are looking for a fall in the US Payrolls to a median 200,000 from October’s 261,000.
The Unemployment Rate is forecast unchanged at 3.7%. Wages are expected to ease to 0.3% from 0.4%.
Heading into tonight’s US Payrolls report, expect consolidation with the Dollar Index well supported at its current lower levels.
Overnight the Dollar Index (DXY) plummeted to 104.66 from yesterday’s opening at 106.00 and a New York high at 105.89. Further unwinding of long USD bets saw the DXY slide to its currency 104.33 level. Look for strong support at the 104.10 level to hold today.
Corresponding levels for the major currency pairs are below:
EUR/USD – After consolidating between the 1.0330 and 1.0430 level for most of the week, the Euro broke higher weighed by broad-based US Dollar weakness. The shared currency was last at 1.0523 after trading to an overnight and near 4-month high at 1.0534. On the day look for immediate resistance to cap at 1.0535 followed by 1.0570. Immediate support can be found at 1.0500, 1.0470 and 1.0430. Look for further choppy trade in a likely range today of 1.0420-1.0540 first up. A good US Payrolls number (+230,000) would see renewed EUR/USD selling.
(Source: Finlogix.com)
USD/JPY – The Dollar slumped against the Japanese Yen to 135.25 from 138.04 yesterday. Comments from a BOJ official quoted in the Japanese media calling for a review of the monetary framework of the Japanese central bank boosted the Japanese currency up against the Greenback. For today, look for immediate support at 135.00 followed by 134.70. On the topside, immediate resistance is found at 135.60, 136.00 and 136.50. Look for a volatile start today. Likely range 135.00-137.00 heading into the US NFP report.
GBP/USD – Sterling soared against the backdrop of an overall weaker Greenback to 1.2258 in late New York, up markedly from yesterday’s 1.2048. In volatile trade, the overnight high recorded was at 1.2311. Overnight low traded for GBP/USD was at 1.2070. Look for another potential volatile trading day. Immediate support lies at 1.2210 followed by 1.2170 and 1.2120. Immediate resistance is found at 1.2280, 1.2310 and 1.2340. Heading into the US Payrolls report, look for a likely range today of 1.2120-1.2280.
AUD/USD - The Aussie Battler had a modest rise against the Greenback, finishing at 0.6815 against yesterday’s 0.6787. Overnight high traded was at 0.6844. For today look for immediate resistance at 0.6840 followed by 0.6870 and 0.6900. On the downside, immediate support lies at 0.6785, 0.6735 and 0.6695. Look for further choppy trade in the Aussie, likely range heading into the US NFP report, 0.6750-0.6850. Prefer to sell rallies.
Happy Payrolls Friday all and a top weekend too.
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