Forex Roundup: Dollar Rules Despite the Slides
On Thursday, investors will monitor global bond markets closely as yields continue to rise. Late in the Asian session, Australia will release its trade data for August. On Friday, the US will publish its weekly jobless claims report.
On Thursday, October 5, here’s what you need to know:
Before staging a recovery, bond yields in the US and Europe reached levels not seen in years. In the UK, the 30-year yield reached 5%, in Germany, it reached 3% for the first time since 2011, and the 10-year Treasury yield peaked at 4.88%. In the future, investors will continue to pay close attention to the bond market because it is an important factor in the financial markets.
It is estimated that private payrolls increased by 89,000 in September, below the market consensus of 153,000, marking the lowest level since January 2021, according to Automatic Data Processing (ADP). There is evidence that the labor market has weakened, but other reports may provide confirmation. The ISM Services PMI declined from 54.5 to 53.6 in September in line with expectations.
Chief Economist, ADP Nela Richardson:
Our jobs market is experiencing a steep decline this month, while our wages have steadily declined.
As a result of the softer ADP report, bonds have recovered somewhat, but US data due Thursday with Jobless Claims and Friday with Nonfarm Payrolls may trigger more USD gains and increase bond market volatility.
Despite Tuesday’s wild fluctuations, USD/JPY remained steady at around 149.00. As the pair rose above 150.00, Japanese authorities likely intervened. At the same time, the US Dollar has begun to retrace its recent rise from a nearly 11-month high. There are several influencing factors, including yesterday’s lackluster US ADP report and tempered US services sector performance, suggesting the Fed might reconsider aggressive interest rate hikes. In response, US Treasury bond yields softened, further pressuring the dollar.
Many Fed officials, however, argue that inflation must be realigned to 2% by continuing policy adjustments. It has been confirmed that the view of sustained higher rates is strengthened by the broader market sentiment that one more rate hike will occur this year. Traders should be cautious when taking a strong bearish stance on USD/JPY because this backdrop could boost US bond yields and the USD.
With the US Dollar weakening, EUR/USD leaped to 1.0525 and rose daily. Eurozone Retail Sales fell by 1.2% in August and the Producer Price Index (PPI) decreased by 0.6%, in line with market expectations.
The German trade data is due on Thursday. Since the European Central Bank (ECB) is firmly expected not to hike rates, comments from central bankers are less relevant.
Despite the trend still being down, the GBP/USD pair had its best day in over a month, rising from six-month lows at 1.2030 to around 1.2150.
As commodity prices rose, the AUD/USD exchange rate rose, holding above 0.6300. A breakout above 0.6360 is needed to alleviate bearish pressure. Australian trade data will be released on Thursday.
It was expected that the Reserve Bank of New Zealand (RBNZ) would keep its rate at 5.5%. Market expectations suggest a rate hike may occur on November 29 following updated macro forecasts and a press conference. Despite falling to September lows at 0.5870, NZD/USD recovered, ending the day positively around 0.5930.
Due to the sharp drop in crude oil prices, the Canadian Dollar was the worst performer among major currencies. USD/CAD reached the highest level since March of 1.3784. Despite modest gains, Gold is under pressure at $1,820. Silver lost some ground and consolidated recent losses at $21.00, staying in the recent range.
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