The Dollar has dropped significantly across the board this morning after the worse than anticipated US jobs numbers along with growing fears of a potential recession in the near future due to the inverted yield curve. US Non-Farm Employment Change was released at +155K compared to +198K forecast consensus, along with a downward revision of -13K for previous to +237K total for last month. Average Hourly Earnings MoM was 0.1% lower than consensus at +0.2% while the domestic Unemployment Rate came in at 3.7% which matched target and previous. The Buck fell close to its lows versus the Euro for this week, fell sharply to a two-day low in its pairing with the Loonie after USDCAD touched an 18-month high yesterday as the simultaneously released Canadian jobs number was much better than anticipated this morning, was essentially sideways with the generally soft Sterling today, is a few points from the 41-day low it touched against the Swiss Franc yesterday, managed to maintain a higher level versus the Yen as risk tolerance was little higher overnight, ticked a few points lower versus the Aussie and Kiwi after it rallied against the antipodeans yesterday, while it fell to a three-day trough in its pairing with the Mexican Peso after the release. Key domestic inflation data highlights economic releases for next week as PPI Mom is on Tuesday morning, the key CPI MoM number is on tap Wednesday, along with Retail Sales MoM on Friday morning.
The Loonie rallied across the board as a result of much better than anticipated Canadian jobs numbers along with higher oil prices overnight. The Canadian Employment Change number was a blockbuster +94.1K compared to only 10.5K forecast while the Unemployment Rate fell 0.2% to 5.6% also. This pushed the struggling Loonie to rally sharply to a two-day high versus the Greenback, Euro, and Pound after USDCAD touched an 18-month peak just yesterday. While this does not make up for the more dovish than expected Bank of Canada (BoC) meeting this week, the release is very relevant as to the timing of the next BoC rate hike. Next week is a light on for Canadian economic data with Building Permits MoM and Housing Starts on Monday first thing, the Capacity Utilization Rate on Wednesday morning, along with the ADP Non-Farm Employment Change and NHPI MoM for early Thursday morning.
The Euro rallied to a few points below its eleven-day high versus the Buck from Tuesday morning after the worse than expected US Employment Report today, dropped to a two-day low against the Loonie after the spectacular Canadian jobs numbers, while touching a two-day peak versus Sterling as well earlier today. Market participants have been focusing more on negative factors in the US – and elsewhere - for the past few sessions despite the ongoing Italian budget issue along with the French civil protests. German Industrial Production was a disappointing -0.5% versus +0.3% forecast but the key Eurozone Final GDP QoQ was on target at +0.2% as was Final Employment Change QoQ at the same number which also matched consensus.
The British Pound is sideways versus the Buck while falling to a two-day low against the Lonnie and Euro this morning as the market remains concerned about the key Brexit vote in parliament on Tuesday given the expectation that the government will likely be defeated by a large margin which could even lead to Prime Minister Theresa May changing her approach. This could result in an alternative plan such as renegotiating the critical backstop with the EU and then trying again to get her deal through Parliament. Or possibly pivoting to a Canada style hard Brexit, even though there isn’t a majority in Parliament for this. An additional option would be to have a closer relationship with the EU but also in this case there seems to be no majority for this in Parliament. Another path would be for her to resign and let another Tory MP try their luck, or possibly, she could call a general election, but that wouldn’t solve the Brexit issue. Eventually, she could call another referendum, and with this regard, Bloomberg currently gives a 44% probability. However, this would easily be criticized as being undemocratic. PM May has been nothing if not determined, so it may well be that she returns to Brussels and tries again. This will merely prolong the Brexit uncertainty, so a weaker pound during this time wouldn’t surprise, but if the market thinks there is another referendum to come, the Pound could rally quite significantly. The Halifax HPI MoM matched the -1.4% for October today which was much worse than +0.3% forecast and +0.7% previous today.
The Dollar fell a bit versus the Aussie and Kiwi after rallying against both the antipodean commodity currencies yesterday in light of the worse than anticipated US Employment Report, higher oil, gold, and copper prices overnight, along with an uptick in risk tolerance.
The Yen is a touch weaker against the Buck on increased risk appetite after USDJPY touched an October 29 low yesterday on broad risk off trading. That said USDJPY has fallen on the week given the drop in the US 10-year Treasury yield along with fears of a US recession – which could lead to a global one – amid the flattening yield curve. Japanese Household Spending YoY was a meager -0.3% compared to +1.2% forecast consensus but was better than -1.6% previous.
The Swiss Franc came off tis 41-day high versus the Dollar yesterday on increased market risk appetite combined with slightly lower Swiss Foreign Currency Reserves this month at 749B Fr. compared to 753B Fr. for last month.