The dollar is dominating the markets after positive job data and gold is dropping to the 1312 level
The Dollar Index (USD/DXY) ended flat after a stellar US Jobs gain which beat expectations was neutralized by weaker wage growth. The Yen slumped after the BOJ reiterated its dovish policy stance. BOJ Governor Haruhiko Kuroda said that they had no plans to change monetary policy before reaching a 2 percent inflation target.
While the Dollar Index (USD/DXY) ended flat, it soared against the Yen but fell against most major currencies. The market’s appetite for risk rose earlier in the session after US President Trump said that he was prepared to meet with North Korea’s Kim Jong Un.
Treasuries rose along with stocks and Yields climbed. The yield on the US Ten-year treasury rose three basis points to 2.89%. Japan’s Ten Year JGB yield was flat at 0.04%.
It’s worth taking a closer look at the Payrolls numbers because there is every reason to be optimistic about the US economy… and the US Dollar. A total of 313,000 Jobs were created, that’s significantly stronger than the already high 200,000 expected. Huge! The two prior months (December and January) were revised higher by a total of 54,000. Equally huge. The Unemployment Rate held steady at 4.1% for the 5th straight month. Average Hourly Earnings (Wages) rose 2.6% from a year earlier following a downwardly revised 2.8% gain. Inflation pressures remain muted which enabled stocks to rally. While wages slowed, the participation rate (people coming back to the labour force) rose to 63% (62.7% prior). Which is the highest since September. Not very long ago, these kinds of numbers would have seen the Dollar take off like a rocket. US Treasury yields rose in the Ten years up 3 basis points while the Two–year yield ended up at 2.26% (2.25%).
The debate will continue on how quick the Fed would continue to raise interest rates.
Fed speak was balanced out between doves Evans and Bullard and the hawkish Rosengren.
There are no major economic data or events due out today. Much lies ahead though in the coming week. Tuesday starts off with Australia’s NAB Business Survey (February). RBA Assistant Governor Michelle Bullock speaks on Tuesday morning. Later, key US Inflation figures (Headline and Core CPI) are released. Wednesday sees Chinese February Industrial Production and Retail Sales with US Headline and Core Retail Sales and PPI data later on. Mario Draghi speaks at an ECB conference in Frankfurt on Wednesday. Thursday sees New Zealand Q4 GDP data, as well as US Weekly Jobless Claims, Empire State and Philly Fed Manufacturing data. Finally, Friday sees the final reading on Euro Zone inflation for February and key US New Housing Starts and Industrial Production numbers.
The Dollar Index (USD/DXY) closed virtually flat at 90.103 (90.151 Friday). The small rise is a result of a higher USD/JPY (which takes 13.6% weight in the Index). Overall range for the USD/DXY was between 89.918 and 90.357. Immediate support lies at the 89.90-90.00 level and while this holds we could see a slow grind higher. Immediate resistance can be found at 90.30 and then 90.50. Given the rise in the US Ten year yield, the Dollar Index looks poised to test higher. Likely range 90.00-90.40.
USD/JPY – soared following the BOJ’s dovish tone in their latest policy meeting to 107.049 before settling lower to close at 106.81. While BOJ Governors Kuroda sounded optimistic on growth, stressed that there was no plan to change its ultra-loose monetary policy before reaching a 2% inflation target. The increase in risk appetite also pressurized the Yen. We have stressed that the BOJ will keep a dovish stance on policy while the USD/JPY remains anchored near 105.00. USD/JPY now looks poised to test 108.00 strong resistance level once again. Immediate resistance lies at 107.00 and then 107.20. Immediate support can be found at 106.50. On the other side, seasonal repatriation (due to March fiscal year-end) should see sporadic demand for Yen, ie supply for US Dollars. Look to buy dips with today’s likely range 106.60-107.60.
EUR/USD – finished little-changed at 1.2305 (1.2315 Friday). Following Draghi’s statement on Thursday that regional inflation remained subdued, the Euro stayed offered. EUR/USD has immediate resistance at 1.2330-40 (overnight high 1.2334). Immediate support can be found at 1.2290 and then 1.2270 (overnight low 1.2273). The speculative community remains long in Euro at multi-year highs. Look to sell Euro rallies with today’s likely range 1.2270-1.2320.
AUD/USD – finished higher as risk appetite increased. Prime Minister Malcolm Turnbull confirmed that Australia would be exempted from US steel and aluminum tariffs. Australia cooperates with the US on military matters and also has a bilateral trade deficit with the US. This saw the AUD/USD grind higher to 0.78538 overnight high before settling at 0.7847 at the NY close. AUD/USD has immediate resistance at 0.7850/60. Immediate support lies at 0.7820 and then 0.7800. Commodities remain firm with Copper climbing 1.8%. All of this should keep the Aussie supported. However, interest rate differentials continue to widen in favour of the US. The Ten-year Australian bond yield fell two basis points to 2.78%. US Ten Year finished up 3 basis points to 2.89%. Likely range today 0.7800-0.7860. Prefer to sell rallies.
USD/CAD – also outperformed due to Canada’s exemption from US trade tariffs and higher commodity prices, led by Oil. Brent Crude Oil prices rose 2.65% (US$ 65.45 from US$ 63.75.) Not so Loony anymore and looking healthy. While Canada’s Jobs gains were less than forecast, the Unemployment rate improved to 5.8% from 5.9%. USD/CAD has immediate resistance at 1.2830 and then 1.2870. Immediate support can be found at 1.2800 and then 1.2775. Overnight low traded was 1.28108. BOC Governor Stephen Poloz speaks late Tuesday in Ontario. Likely range 1.2800-60.
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