Dollar Lower on NFP Miss, Supported by Wage Growth

Market overviews

Dollar drops mildly in early US session after weaker than expected employment data. Yet, downside is limited as support by stronger than expected wage growth. At the time of writing, commodity currencies are the strongest one for today with help from China’s RRR cut. Canadian Dollar is additionally supported by strong job data. On the other hand, Swiss Franc is the weakest one for now, followed by Sterling and then Dollar.

Technically, AUD/USD’s break of 0.6822 finally indicate resumption of rebound from 0.6677. Further rise should now be seen to 0.6910 support turned resistance next. Upside momentum in Yen crosses are generally diminishing and we might seen more retreat in USD/JPY, EUR/JPY and GBP/JPY before weekly close. Also, the Pound appears to be losing upside momentum against Dollar and Euro too. Sterling might need next week’s vote on election for further inspirations.

In other markets, DOW future is currently up 80 pts. In Europe, FTSE is up 0.01%. DAX is up 0.42. CAC is down -0.01%. German 10-year yield is down -0.0234 at -0.616. Earlier in Asia, Nikkei rose 0.54%. Hong Kong HSI rose 0.66%. China Shanghai SSE rose 0.46%. Singapore Strait Times dropped -0.08%. Japan 10-year JGB yield rose 0.0263 to -0.245.

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NFP grew just 130k, unemployment rate at 3.7%, but wage growth accelerated

US non-farm payroll report showed only 130k employment growth in August, below expectation of 162k. Prior month’s figure was also revised down from 164k to 159k. Unemployment rate was unchanged at 3.7%, matched expectations. Participation rate edged up to 64.2%. However, average hourly earnings rose 0.4% mom, above expectation of 0.3% mom. Dollar is just slightly lower after the release as weak headline number was offset by strong wage growth.

Canada employment rose 81.1k, well above expectations

Canada employment jumped 81k in August, well above expectation of 12.5k. The bulk of the employment increase was in Ontario and Quebec. There were also smaller gains in Manitoba, Saskatchewan and New Brunswick. Employment held steady in the other provinces. There were more people employed in finance, insurance, real estate, rental and leasing; educational services; and in professional, scientific and technical services. In contrast, employment declined in business, building and other support services. Unemployment rate was unchanged at 5.7%, matched expectations.

Eurozone Q2 GDP growth finalized at 0.2% qoq

Eurozone Q2 GDP growth was finalized at 0.2% qoq, unrevised, down from Q1’s 0.4% qoq. EU 28 GDP growth was finalized at 0.2 qoq, down from Q1’s 0.5% qoq.

Among Member States for which data are available, Hungary (+1.1%) recorded the highest growth compared with the previous quarter, followed by Romania (+1.0%) and Bulgaria, Denmark, Greece, Cyprus, Lithuania and Poland (all +0.8%). Decreases were observed in the United Kingdom (-0.2%), Germany and Sweden (both -0.1%), while in Italy, stagnation was observed.

Household final consumption expenditure rose by 0.2% in the Eurozone and by 0.3% in the EU28 (after +0.4% in both zones in the previous quarter). Gross fixed capital formation increased by 0.5% in the euro area and by 0.4% in the EU28 (after +0.2% and +0.5% respectively). Exports did not change in the euro area and decreased by 0.3% in the EU28 (after +0.9% in both zones). Imports increased by 0.2% in the euro area and decreased by 1.4% in the EU28 (after +0.4% and +1.6%).

German industrial production dropped -0.6% mom, below expectation of 0.3% mom

German industrial production dropped -0.6% mom in July, well below expectation of 0.3% mom. Over the year, production dropped -4.2% yoy. Looking at some details, production in industry excluding energy and construction was down by -0.8%. Within industry, the production of intermediate goods decreased by -0.7% and the production of capital goods by -1.2%. The production of consumer goods showed an increase by 0.6%. Outside industry, energy production was down by -1.3% and the production in construction increased by 0.2%.

Australia AiG construction index recovered to 44.6, slower contraction

Australia AiG Performance of Construction Index recovered to 44.6 in August, up from 39.1. The reading indicated an easing in the construction industry’s overall rate of decline. Looking at some details, rates of decline in new orders, supplier deliveries and employment were all slower in the month. But overall, key activity sub-index fell for an 11th consecutive month.

BoJ Kuroda doesn’t rule out deeper negative interest rate

In a Nikkei interview, BoJ Governor Harukiho Kuroda maintained his optimistic view on the economy. He noted that “we’re maintaining momentum toward the price stability target” of 2% inflation”. Also, “domestic demand — consumer spending and capital investment — are relatively firm.” However, “caution is needed” due to overseas uncertainties, in particular with trade war. Cutting interest rates “further into the negative zone is always an option” if more monetary stimulus is needed.

BoJ has laid out the four policy options in case of a downturn. Those include cutting the short-term policy rate, lowering its target for long-term rates, stepping up asset purchases and accelerating expansion of the monetary base. Kuroda said “we’re considering a variety of possibilities, including combinations of these and improved versions.”

Released from Japan, overall household spending rose 0.8% yoy in July, below expectation of 0.9% yoy. Labor cash earnings dropped -0.3% yoy, below expectation of 0.1% yoy. Leading indicator rose 0.3 to 93.6, above expectation of 93.2.

PBoC announces RRR cut to support the real economy

China’s central bank PBoC announced to lower reserve requirement ratio for all banks by 50bps, starting September 16. Additionally, the RRR will be lowered by further 100bps for commercial banks operating only in the provincial administrative region, to support small and micro enterprises. This additional RRR cut will be implemented by two batches on October 15 and November 15.

Together, the RRR cuts are expected to release around CNY 900B. They will increase resources of financial institutions for supporting the real economy. And, targeted RRR cut is an important measure to improve the “three-grade and two-optimal” policy framework for small and medium-sized banks to implement a low deposit reserve ratio.

PBoC also said that the RRR cut will hedge against tax period in mid-September. Total liquidity of the banking system will remain basically stable. Thus, stable monetary policy orientation has not changed.

AUD/USD Mid-Day Outlook

Daily Pivots: (S1) 0.6795; (P) 0.6813; (R1) 0.6831; More…

AUD/USD’s rebound from 0.6677 resumed by breaking 0.6822 resistance and hits as high as 06847 so far. Intraday bias is back on the upside for 0.6910 resistance next. Break will target 0.7082 key structure resistance. On the downside, though, break of 0.6807 minor support will turn bias back to the downside for retesting 0.6677 low instead.

In the bigger picture, decline from 0.8135 (2018 high) is seen as resuming the long term down trend from 1.1079 (2011 high). Next target is 0.6008 (2008 low). On the upside, break of 0.7082 resistance is needed to be the first sign of medium term bottoming. Otherwise, outlook will remain bearish even in case of strong rebound.

Economic Indicators Update

GMT Ccy Events Actual Forecast Previous Revised
22:30 AUD AiG Performance of Construction Index Aug 44.6 39.1
23:30 JPY Overall Household Spending Y/Y Jul 0.80% 0.90% 2.70%
23:30 JPY Labor Cash Earnings Y/Y Jul -0.30% 0.10% 0.40%
05:00 JPY Leading Index Jul P 93.6 93.2 93.3
06:00 EUR German Industrial Production M/M Jul -0.60% 0.30% -1.50% -1.10%
07:00 CHF Foreign Currency Reserves (CHF) Aug 767B 768B
09:00 EUR Eurozone Employment Q/Q Q2 F 0.20% 0.20% 0.20%
09:00 EUR Eurozone GDP Q/Q Q2 F 0.20% 0.20% 0.20%
12:30 CAD Net Change in Employment Aug 81.1K 12.5K -24.2K
12:30 CAD Unemployment Rate Aug 5.70% 5.70% 5.70%
12:30 USD Change in Non-farm Payrolls Aug 130K 162K 164K 159K
12:30 USD Unemployment Rate Aug 3.70% 3.70% 3.70%
12:30 USD Average Hourly Earnings M/M Aug 0.40% 0.30% 0.30%
14:00 CAD Ivey PMI Aug 55.2 54.2

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