• USD is stronger against most major currencies as nonfarm payrolls and unemployment beat expectations.
• EUR fell against the USD and hovers around 3-month lows.
• Commodity currencies are mixed with stronger employment data for CAD and weak trade numbers for AUD.
USD – The US dollar rose against most major currencies as company hiring and US services industries rose more than forecasted. Nonfarm payrolls rose 236K in February, far more than expected, and nearly double the previous month’s pace of 119K. The February gain is well above the 187K average of the past six months, which is a step-up from 141K the previous six months. The biggest jump in job gains was led by construction (48K), manufacturing (14K), and a sharp advance in business services (73K). The unemployment rate fell to 7.7% (4-year low) from 7.9% reflecting both a gain in employment and an increase in people leaving the labor force. Inventories at US wholesalers jumped in January by the most in more than a year as companies shrugged off concerns about fiscal policy and ramped up in anticipation of rising consumer demand. The 1.2% increase in stockpiles exceeded all estimates amongst a survey of economists. At the same time, the Dow reached record highs above 14,400 and the yield on the benchmark 10-year US Treasury note rose sharply. Strong US job numbers added to speculation the Fed could back off its program of policy easing earlier than expected. However, the Fed has stated it would keep up asset purchases and keep rates near zero until it sees a substantial improvement in the labor market, pegging the accommodative policy until unemployment drops below 6.5%.
EUR – The euro fell against the dollar, even as the ECB gave no indication of an interest rate cut during the central bank meeting held yesterday. Despite the recent EUR/USD selloff, some investors still anticipate the ECB to cut rates. In support of this belief was the head of the IMF who said earlier today that stronger economies such as Germany should allow for higher inflation and wage growth, adding to reasons why the ECB should cut interest rates further - a move that will add more downward pressure on the currency.
GBP – Sterling fell to a 2 ½ year low against the dollar as the BoE is expected to expand its asset purchases as early as next month. The policy would involve printing money to buy British gilts and driving up the supply of pounds, putting pressure on the currency's value. With that, the pound is likely to suffer further, even as it has already been one of the worst performing major currencies in 2013, falling around 7.5% against the dollar.
JPY – The JPY dropped to a fresh 3 ½-year low against the US dollar, depressed by new U.S. data showing unemployment rate dropping to a 4-year low. The yen remains under pressure awaiting April’s BOJ policy meeting with expectations that the new officials will take aggressive action to beat deflation. At this week’s meeting, the last with current BOJ Governor Shirakawa and his 2 deputies before their departure on 3/19, no policy changes were made as they voted down a proposal to step up monetary stimulus. However, investors say bolder action is expected to come when Haruhiko Kuroda takes over as BOJ Governor. The yen reached a low of 96.54 and currently trades in the 96 ranges.
Commodity Currencies – The commodity currencies are mixed against the USD, after the release of positive domestic data in the US. The CAD strengthened against the USD, hitting a one-week high after employment data surpassed market expectations in both the US and Canada. Canada’s employment rebounded from January’s losses with the addition of 50,700 net new positions in February. The BoC expects annualized growth of 2.3% in the first quarter versus 0.6% in the fourth. The Canadian central bank signaled this week that they were in no rush to raise interest rates after a prolonged pause. The BoC members did mention that their next move would be a rate hike rather than a cut. The AUD weakened against the USD after showing disappointing data in Asian trade. The Chinese trade balance data showed that imports contracted by 15.2%, raising concerns that demand for Australia’s coal and iron ore are waning. Market participants should expect the AUD to remain in its weekly ranges until the employment data is released next Wednesday.
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