In FX All Eyes on Wages not Jobs

Market Drivers October 6, 2017
Aussie under pressure as RBA opens way to rate cut
Cable under more pressure
Nikkei 0.30% Dax 0.05%
Oil $51/bbl
Gold $1268/oz.

Europe and Asia:
No Data

North America:
USD NFP 8:30
CAD Labor 8:30
CAD Ivey PMI

The dollar was generally stronger against all of it major trading partners today ahead of the marquee event of the week, as markets awaited the US Non-Farm payrolls report due at 12:30 GMT.

The move higher, however, wasn’t driven by any bullish anticipation of US data – in fact, the consensus view is that US payrolls will post a sub six-figure gain for the first time in more than a year. Rather, the weakness across the board was due to idiosyncratic news for each currency.

In UK, cable continues to suffer from Prime Minister’s May’s disastrous party speech, which has put her leadership in question and created turmoil in the markets as traders price in the political uncertainty. Sterling tumbled to a session low of 1.3060 and could test the key 1.3000 support later in the day if US data proves to be better than forecast.

Meanwhile, in Australia, RBA board member Ian Harper sent Aussie into a tailspin after noting that the central bank was not ruling the prospect of a rate cut if the slowdown in the economy worsens. Australian Retail Sales missed their mark badly this week suggesting that consumer demand is slowing and that clearly has policymakers concerned. Aussie tumbled all the way to .7750 before finally finding some support.

With Non-Farm payrolls due in a few hours, market attention will turn to North America where both Canada and US report their labor numbers. In US, the market is looking for a sharp drop off in job due to severe hurricane activity last month, but the true focus will be on average hourly earnings which are forecast to rise 0.3%. If the number meets expectations then the dollar is likely to rally irrespective of the payroll results as markets will be heartened to see that wage growth is finally taking hold. Deflation has been the one and only concern of the Fed and broader economic growth is finally translating to wage gains the US central is almost certain to hike rates in December.

Finally, in Canada, sentiment towards the loonie has cooled markedly this week, as further rate hike expectations have been pushed back to end of the year rather than October. If today’s data disappoints, those forecasts may be pushed out until 2018 and USDCAD could see 1.2700 before the end of the day.