US unemployment rate lowest in 50 years.

October 4, 2019

USDCAD open 1.3326-30 (6:00 am EDT)    Overnight Range 1.3303-1.3336

US nonfarm payrolls rose 136,000 in September, below the consensus forecast of 145,000.  The results were a mixed bag.  The unemployment rate was 3.5% compared to 3.7% last month, the participation rate was unchanged but average hourly earnings were 0.0%, below the 0.3% forecasts.  August payrolls were revised higher, to 163,000.  The odds for an October rate cut slipped to 79.6^ from 88.7% after the news.

The US dollar traded softer yesterday, trickled lower overnight, and then recouped some of its losses in post-NFP trading.

FX Market Snapshot

Change in currency value against the US dollar from New York open to Post-NFP trading

A whiff of risk aversion is in the air.  The Hong Kong government gave itself emergency powers to combat civil unrest.

EURUSD traded sideways in a 1.0965-1.0982 range.  Weak PMI Manufacturing and Services data continues to cap the topside while broad US dollar selling pressure against the other majors limits the downside.  The short term EURUSD technicals are bearish while trading below 1.1030.

GBPUSD rallied to 1.2432 from 1.2310 yesterday on rumours that UK Prime Minister Boris Johnson’s Brexit plan was getting positive reviews from EU officials.  It wasn’t.  The reviews were mixed, and the details of the plan are vague.  Prices retreated to 1.23202 following the NFP print.

USDJPY added to its losses overnight and opened at the bottom of its 106.74-106.91 range.  Once again, falling US Treasury yields, and a bit of safe-haven demand for yen, are weighing on the currency pair. However, the modest drop in rate cut expectations lifted USDJPY to 107.04 following the payrolls report.

AUDUSD is perky.  Prices opened at the overnight peak of 0.6760 after climbing from 0.6740, underpinned by a 0.4% m/m rise in August Retail Sales.  (July 0.0% m/m).  NZDUSD tracked AUDUSD moves with both currency pairs supported by Fed rate cut risks in October.

West Texas Intermediate (WTI) oil prices are well above yesterday’s $51.14 low, trading at $53.30 following the NFP data.  Gains are capped if the US dollar stays soft, and the outlook for global growth is negative.

USDCAD dodged another bullet yesterday.  Another attempt to blow through major resistance in the 1.3350 area failed on the back of US dollar weakness.  Dovish FOMC sentiment contrasts with a more neutral Bank of Canada outlook which has narrowed CAD/US interest rate differentials and capped USDCAD gains. The Canadian dollar got a bit of a boost from today’s Merchandise Trade data.  Statistics Canada reported the trade deficit narrowed from $1.4 billion in July to $965 million in August, thanks to a rise in exports.  USDCAD could fall further on a better than expected Ivey PMI report.  (forecast 54.3, seasonally adjusted.)

USDCAD Technical View

The intraday USDCAD technicals shifted to neutral again.  A break above 1.3350 or below 1.3300 will trigger another 0.0050 point move.  However, there doesn’t appear to be much scope for breaking out of the 1.3100-1.3400 range any time soon.  For today, USDCAD support is at 1.3300 and 1.3260.  Resistance is at 1.3350 and 1.3390.  Today’s Range 1.3270-1.3350

Chart: USDCAD daily

Source: Saxo Bank