Did King Dollar derail by spurious headlines?
The dollars affirmative action to the US payrolls report appears warranted on the surface more so in light of the substantial showing in earnings.And as expected, traders danced around the negative undertones from 33,000 job losses which are supposed to be temporary. With the dollar already trading on a positive footing and US 10y yields peeking at July’s high’s, momentum was clearly in the Greenbacks favour, But; some economists are suggesting the AHE bounce was due to hurricane effect as lower-paid earners temporarily leave the data sample skewing the print higher.
Forex traders, however, took the earnings print in earnest and continued to plough into the dollar. But unfortunately for the bulls ” the buck doesn’t stop here.” Just as profit taking was setting in at pre-NFP targeted levels ¥113.20 and A$ .7750, open to doubt North Korea headlines flooded the radar. Ambiguous reports surfaced that “Pyongyang is planning to test-fire a missile that is capable of reaching the western coast of the US, Anton Morozov, a member of the Russian State Duma Committee on International Affairs told RIA Novosti.”
Predictably the knee-jerk reaction in the corresponding risk assets set in with US rates moving lower, USDJPY off 80 pips to ¥ 112.65 and XAU (gold) spiking a touch higher. Since Tuesday is the anniversary of the founding of the North Korean communist party, tapering positioning into the long weekend seemed wise. While this storyline could be little more than a tempest in a teapot and a North Korean tit for tat reaction to Trumps arcane ” calm before the storm” comments, the markets will probably need some actionable convincing that geopolitical risk is on the rise again before extending this debatable risk reversal. Freaky Friday strikes again.
In the where there’s smoke, there’s fire category; Trump advisers are purportedly floating the idea of replacing Secretary of State Rex Tillerson with CIA Director Mike Pompeo. If ” Rexit ” happens there will likely be some adverse short-term reaction, but given markets are accustomed to Trumps trial and error approach to members of his inner sanctum, the fall out will be limited.
While last week started “not with a bang but a whimper “event risk is apparently on the rise again distorting early trends, and maturing themes given the markets impulse to push the panic button on any headline risk.
But the primary takeaway for this week past, there are growing reasons to be bullish USD
New Zealand Electoral commision declared the official results of the September 23 election showed the National ruling party lost 2 seats to a probable Labour/Greens/NZ First coalition. With 56 seats out of 120, the National will need to entice nine places across the floor to stay in power. While Monday’s risk appetite is still in question on the North Korea headlines, we could see Kiwi open sharply lower on Monday regardless.