Firm payrolls fail to drive the USD higher

The highlight from Friday’s trade was a much better-than-expected non-farm payrolls number which showed 203,000 jobs created, when the market was anticipating 180,000.

The unemployment rate dropped to 7%, better than the 7.2% expected. The three-month average on payrolls is now 193,000. There were also some hawkish comments by Fed members, with Plosser saying the sooner QE ended the better following the payrolls print, and Evans said he’s open to December tapering.

While US dollar strength and risk weakness would have been the expected result, the market showed impeccable resilience as equities, bonds, gold and risk currencies all gained ground. In fact the only currency the USD continues to do well against is the yen and USD/JPY managed to bounce off lows in the 101.80 region and is back trading near 103. It certainly seems like the market is now comfortable with the fact that tapering is not tightening. As a result, with the Fed funds rate unlikely to move, then the market actually feels there is little to be concerned about.

There has been a bit of data out of Japan today including current account, final GDP and bank lending this morning. However, the data hasn’t had too big an impact on USD/JPY which continues to hold above 103. We’ll be eyeing USD/JPY to retest last week’s highs in the 103.38 region with more action likely on the US dollar side of the equation. Later today we have Fed members Lacker, Bullard and Fisher speaking. There is plenty of Fedspeak to look out for this week and this will help shape tapering expectations.

China data in focus for risk currencies

There was a sharp reversal in risk currencies on Friday as the USD lost ground it had initially gained on the NFP reading. AUD/USD tested 0.90 only to recover swiftly to 0.91. The pair had a stellar start this morning, jumping to 0.913 on the back of some encouraging data from China over the weekend. China’s trade balance figures showed a much wider-than-expected surplus of 33.8 billion, while the market was anticipating 21.3 billion. This was the largest surplus in more than four years and really shows that global demand is picking up. There has been a solid pick-up in shipments to the US, Europe and South Korea.

In Australia today we had ANZ job ads at 11.30am, which came in quite negative and contributed to some AUD weakness. We also have more data out of China, with CPI and PPI due out at 12.30 AEDT. CPI is expected to show a 3% rise and maintain an acceleration from recent lows in the 2% region. This would give Chinese authorities less reason to be concerned about downside inflation risks, but of course will make a case for a less accommodative approach. Should the CPI come in well ahead of estimates, this could be a source of a pullback for risk in Asia. There is a raft of data out of China tomorrow which is likely to have an impact on how risk trades, particularly the AUD. China’s industrial production, retail sales and fixed asset investment will be released.

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