US Dollar Slides Despite Surprise Fall in Unemployment

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Headlines

  • AUD Exchange Rates Recover Ground as Service Sector Edges Closer to Growth Territory – Weaker inflation gauge may dent Australian Dollar
  • UK Services PMI Rebound Offers Limited Boost to Pound – Concerns remain over strength of second quarter economic outlook
  • Euro Trends Lower even as Eurozone Inflation Rate Jumps – Markets maintain negative outlook on inflation
  • Surprise Tightening of US Labour Market Fails to Bolster US Dollar – Underlying details of jobs report paint less encouraging picture

Improved Services PMI Supports Australian Dollar

April’s Australian services PMI showed a moderate improvement on the month, picking up from 44.8 to 46.5 on Friday. This offered support to the Australian Dollar, even though the sector remained in a state of contraction for another month. A severe plunge in March’s building approvals limited the upside potential of AUD exchange rates, however, as the figure slumped -27.3% on the year. As the US Dollar fell out of favour ahead of the weekend, though, this offered a fresh leg up to the Australian Dollar.

Unless the TD Securities inflation gauge shows an acceleration in April AUD exchange rates could lose fresh ground this morning.
 
Pound Wobbles as UK Service Sector Sees Modest Rebound
 
Although the UK services PMI returned to positive territory in April this was not enough to give the Pound any particular rallying point. As the index still only showed modest growth at just 50.4 this suggests that the economy remains under pressure as a result of Brexit-based uncertainty. All in all, the UK economy appears to have started the second quarter on a relatively weak footing, leaving investors with limited incentive to buy into the Pound.
 
In the absence of any fresh UK data today GBP exchange rates look vulnerable to renewed losses.
 
Higher Eurozone Inflation Not Enough to Boost Euro
 
The Eurozone consumer price index bettered forecasts to clock in at 1.7% in April, moving closer to the European Central Bank’s (ECB) 2% target. However, this failed to improve the appeal of the Euro during Friday’s European session as markets remain concerned that this uptick is transient in nature. With inflation expected to return to a downtrend in the months ahead, as the Easter boost fades, EUR exchange rates were left on the back foot.
 
An easing in Eurozone retail sales growth could add to the bearish mood of the single currency this evening.
 
US Dollar Trends Lower in spite of Surprise Unemployment Rate Improvement
 
Investors were caught off guard ahead of the weekend as the US unemployment rate unexpectedly tightened from 3.8% to 3.6%. While the headline change in non-farm payrolls figure showed a solid increase on the month this drop in unemployment was also fuelled by a weaker participation rate. As a result, the data did not support the US Dollar, with markets equally disappointed by a lack of wage growth acceleration.
 
Any increase in market risk aversion could still help USD exchange rates to return to a positive footing over the course of the day, though.
 
Modest Oil Price Recovery Fails to Shore up Canadian Dollar
 
While oil prices recovered some of their lost ground at the end of the week this was not enough to shore up the commodity correlated Canadian Dollar. With the oil market still in a generally bearish mood thanks to rising US production investors saw little incentive to favour the Canadian Dollar on Friday. A lack of confidence in the domestic outlook also limited the strength of CAD exchange rates.
 
Comments from Bank of Canada (BOC) Governor Stephen Poloz may drive the Canadian Dollar lower across the board tonight.
 
New Zealand Dollar Benefits from USD Weakness
 
Even in the absence of any fresh domestic data the New Zealand Dollar pushed higher against its rivals ahead of the weekend. The latest bout of US Dollar weakness offered a fresh rallying point to the risk-sensitive currency, especially as the prospect of any Federal Reserve interest rate hike remains distant.
 
NZD exchange rates could falter this morning, however, if April’s ANZ commodity price index fails to show a fresh acceleration on the month.

Data Releases

May 6th 11:00 AUD TD Securities Inflation (YoY) (APR)
May 6th 11:00 NZD ANZ Commodity Price (APR)
May 6th 19:00 EUR Eurozone Retail Sales (YoY) (MAR)

Post by TorFX

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