Photo: Bing Image Creator
November 3, 2023
- US NFP rise 150,000 vs forecast 180,000.
- Canada LFS adds 17,500 jobs (forecast 22,500).
- US dollar opens mixed, consolidating losses.
FX at a Glance
USDCAD Snapshot: open 1.3741-45, overnight range 1.3696-1.3761, close 1.3738
USDCAD accelerated lower yesterday, falling from 1.3862 in Asia to 1.3728 overnight, then broke support in the 1.3710 area following the weaker than expected Canadian and US employment reports.
Canada added 17,500 jobs in October, a healthy number but below the forecast of 22,500 and Septembers 63,800 gain. The dip is expected and payback from the outsized gain in September. The unemployment rate rose 0.2% to 5.7%. Once again, all the job gains were in the public sector which is well beyond bloated and a barrier to economic growth.
Meanwhile the lower than expected NFP gains increased selling pressure on the greenback and USDCAD is making a break lower.
The hourly USDCAD technicals are bearish while trading below 1.3780 and this mornings breach of support at 1.3710 opens the door to a test of the support in the 1.3640-60 zone. A break of 1.3640 will extend losses toward 1.3560.
Longer term, USDCAD daily technicals are bullish while prices are above 1.3540-60 area, the uptrend line from July. A move below 1.3540 would negate the uptrend and suggest a retest of 1.3250.
For today, USDCAD support at 1.3670 and 1.3640. Resistance at 1.3750 and 1.3790. Today’s expected trading range is 1.3660-1.3730
Chart: USDCAD daily
G-10 FX recap
Traders have fully embraced the prospect that the Fed’s tightening cycle has ended and now expect the Fed to cut rates beginning in July. The view is in contrast with Fed Chair Powell’s comments that the bank is prepared to raise rates if supported by incoming data. A key piece of that data is today’s release of the US nonfarm payrolls report.
Nonfarm payrolls rose less than expected (150,000 vs forecast 180,000 and average hourly earnings rose 0.2% (forecast 0.3%) In addition, the September NFP result was revised down by 39,000 jobs to 297,000.
Those believing that the Fed tightening cycle is over loved it. The US 10-year Treasury yield dropped sharply from 4.66% to 4.55% instantly while SP%00 futures jumped 0.51%.
EURUSD traded in a 1.0615-1.0649 range overnight, then surged to 1.0720 post-NFP. ECB policymaker Isabel Schnabel said that the ECB cannot close the door on further rate hikes. Traders do not believe her and have not only priced out further hikes but expect the rates to be cut in 2024.
GBPUSD bounced in a 1.2173-1.2217 then spiked to 1.2317 after NFP. The gains were supported by a narrowing of Gilt/Treasury spreads. The GBPUSD outlook flipped to bullish with the break above the 1.2230-50 area.
USDJPY traded sideways in a 150.24-150.53 band with trading volumes low due to a holiday in Japan, then plunged to 149.28 after today’s US data. As an aside, Reuters reported that the weak yen has forced the Japanese military to cut back on military procurement. Officials planned a 5-year, 43.5 trillion yen defense buildup in 2021, but that was when the yen was 108.00. The nearly 40% drop in the yen against the US dollar has put a serious dent in the budget.
AUDUSD drifted higher in a 0.6420-0.6449 range then jumped to 0.6504, post NFP. Prices are underpinned by the stronger-than-expected Q3 retail sales data (0.2% vs. the consensus forecast of -0.3%), which increased the odds for the RBA to raise rates 25 bps on Tuesday.
Other US data include ISM Services PMI, which is expected at 53, compared to 53.6 in September.
FX high, low, open
PBoC fix: today 7.1796, expected 7.3119, previous 7.1797
Shanghai Shenzhen CSI 300 rose 0.84% to 3584.14.
Chart: USDCNY (onshore) vs USDCNH (offshore) hourly