US Dollar Fails to Capitalise on Unexpectedly Strong Jobs Data

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  • Slowing Retail Sales Fail to Weigh Down Australian Dollar – Rising producer prices encourage inflation hopes
  • Pound Slips in Spite of Higher UK Construction PMI – Solid service sector performance could encourage rally today
  • Canadian Dollar Softens as Labour Market Data Disappoints – Weakening earnings diminish odds of BOC hawkishness
  • Strong US Employment Figures Encourage Federal Reserve Interest Rate Hike Bets – US Dollar struggles to find upside momentum

Australian Dollar Benefits From Producer Price Uptick

Australian retail sales proved weaker than forecast in the third quarter, undermining confidence in the domestic outlook. As sales growth slowed to just 0.2% on the quarter this suggests that Australian consumers are reigning in their spending. However, Australian Dollar exchange rates largely shrugged off this disappointing data as investors instead focused on the latest producer price index figures. A sharp uptick in producer prices in the third quarter points towards rising inflationary pressure, giving AUD exchange rates some cause for confidence.

A weaker TD Securities inflation reading could put the Australian Dollar under renewed pressure this morning, however.

Strengthening Construction Sector Unable to Boost Pound

While the UK construction PMI unexpectedly picked up in October, accelerating from 52.1 to 53.2, this failed to extend the bullish run of GBP exchange rates. As the construction sector only accounts for a minor percentage of the UK gross domestic product the impact of this improved growth was limited. The underlying details of the report also gave investors incentive to sell out of the Pound, with the outlook of the sector continuing to deteriorate in the face of Brexit-based uncertainty.

On the other hand, a stronger showing from tonight’s services PMI could encourage the Pound to surge higher across the board.

Italian Manufacturing Contraction Fails to Prevent Euro Rebound

The Euro was able to recover some ground ahead of the weekend, in spite of the discouraging nature of the day’s Eurozone data. There was little reaction to news that the Italian manufacturing PMI had slumped into a state of contraction, slipping from 50 to 49.2 in October. While this raises fresh questions over the future of the Italian economy EUR exchange rates still managed to push higher. Hopes of a greater easing in global trade tensions helped to fuel demand for the single currency.

Worries over Italy could still drag on the Euro today, though, if there are no signs of progress towards a revised 2019 budget proposal.

Tightening Labour Market Not Enough to Encourage US Dollar Demand

Although US non-farm payrolls proved stronger than forecast in October this was not enough to give the US Dollar a boost heading into the weekend. While the 250,000 increase in payrolls points towards a continued tightening of the US labour market the upside potential of USD exchange rates remained limited. September’s trade balance proved rather discouraging, meanwhile, as the deficit widened from -53.3 billion to -54.0 billion on the month. With an end to the US-China trade spat still not in sight this left the US Dollar on the back foot.

USD exchange rates could find a rallying point overnight as long as the ISM non-manufacturing index remains firmly within growth territory.

Mixed Employment Data Drives Fresh Canadian Dollar Losses

A surprise improvement in the Canadian unemployment rate failed to give the Canadian Dollar a leg up on Friday, with the change driven by a decline in the participation rate. With fewer Canadians active within the labour market confidence in the outlook of the domestic economy naturally diminished. Coupled with an unexpected weakening in hourly earnings this painted a discouraging picture of the domestic outlook, driving fresh CAD exchange rate softness.

Comments from Bank of Canada (BOC) Governor Stephen Poloz could encourage further selling of the Canadian Dollar this evening.

New Zealand Dollar Strengthens in Spite of Weaker Consumer Confidence

While October’s ANZ consumer confidence index showed a sharp decline of -1.9% on the month the mood towards the New Zealand Dollar still picked up on Friday. Even though signs still point towards weakness within the New Zealand economy NZD exchange rates benefitted from a general improvement in market risk appetite. Even so, the relative strength of the ‘Kiwi’ remains decidedly fragile.

A disappointing commodity price index may leave the New Zealand Dollar on a weaker footing today.

Data Released

November 5th 11:00 AUD TD Securities Inflation (YoY) (OCT) 
November 5th 11:00 NZD ANZ Commodity Price Index (OCT) 
November 5th 20:30 GBP Services PMI (OCT) 53.3
November 6th 02:00 USD ISM Non-Manufacturing Index (OCT) 59.5

Post by TorFX

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