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Nonfarm Payrolls and Wage Growth to Drive the USD

Bob Mason
It’s another busy day for the markets, with a heavy set of stats out of the U.S and trade tariff chatter there for the markets to focus on through the day, an escalation in trade war talk likely to overshadow any upbeat data.

Earlier in the Day:

Following the bounce in the Aussie Dollar on Thursday, in response to the better than expected September trade figures, it was a different story this morning. September retail sales stalled, following last month’s revised 0.5% slide, while also falling short of a forecasted 0.5% rise in sales. The Aussie Dollar slid from $0.77139 to $0.76890 upon release of the data.

While trade numbers provided some optimism, concerns over the effects of rising household debt and tepid wage growth on the economy have weighed on the RBA’s outlook on the Australian economy and, despite recent labour market data having been positive, this morning’s numbers are another thorn in the economy’s side.

At the time of writing, the Aussie Dollar was down 0.44% at $0.7679, the decline likely to be welcomed by the RBA who aren’t going anywhere on policy for now.

Elsewhere, the Kiwi Dollar continues on its road to recovery, up 0.43% to $0.6943 at the time of writing, though the road is likely to be a short one, with market sentiment towards the economy and monetary policy likely to pin back the Kiwi for now.

The Day Ahead:

With no material stats scheduled for release out of the Eurozone this morning, there will be little direction for the EUR through the day, with the markets having already digested the ECB’s shift in policy, whilst acknowledging the strengthening economy.

Germany’s manufacturing figures released on Thursday were impressive once more and, despite Merkel’s troubles in forming a coalition, the economy has continued to progress, which has provided some stability to the EUR in recent weeks. It could have been a lot worse if the German economy had ground to a halt

At the time of writing, the EUR was up just 0.03% to $1.1662, with direction through to the close hinged on market sentiment towards the Dollar.

For the Pound, following Thursday’s dovish BoE rate hike, where even the number of votes provided little comfort to the Pound, today’s service sector PMI number will be the only material stat for the day. A return to expansion in the construction sector in October was brushed aside by the markets on Thursday, the numbers having been released ahead of the BoE’s decision. We will expect to see a response to the service PMI numbers in contrast, though any positive numbers are unlikely to pull the Pound back to pre-Thursday levels.

We saw the ECB manage to avoid a taper tantrum last week as had been their intention. In contrast, Carney and the team would have been looking for a better response to the first rate hike since before the global financial crisis. The battle against inflation has certainly not been won and only just begun. While Brexit news will continue to jostle the Pound, the BoE doves will need to come up with something to avoid an inflationary crisis.

At the time of the report, the Pound was up 0.09% to $1.3071, with sub-$1.30 levels possible should today’s stats disappoint.

The main event of the day is nonfarm payroll and wage growth numbers from across the Pond. The light is green for a rate hike next month, but the numbers will need to stack up between now and then. While inflation may be soft, a continued uptick in wage growth will likely be good enough, with nonfarm payrolls expected to rebound from September’s decline, attributed to Hurricanes Harvey and Irma.

Other stats of influence include September’s factory order numbers, which are expected to be Dollar positive, together with October service sector PMI numbers, the ISM figures of greater influence later today.

At the time of writing, the Dollar Spot Index was down just 0.02% at 94.663. For the Dollar to avoid a weekly loss, the figures are going to have to be pretty good. The good news is that speculation over who will be the FED Chair is now over, with market friendly Jerome Powell given the nod. The bad news is that, while the U.S administration rolled out its tax reform plans on Thursday, the speculation will now begin on whether it will get through the house. On the plus side, only a majority vote is needed while on the downside, what level of support remains for Trump is now an unknown and whether it will be enough.

For the Loonie, it’s going to be the September trade data figures that provide direction, with the trade deficit forecasted to narrow, the Loonie flat against the Dollar at $1.2809 at the time of the report.

This article was originally posted on FX Empire