The G19 + USA non-event

The G19 + USA non-event

Weekend G20 headlines had no impact on Foreign Exchange markets this morning as the overall language reads very familiar. The great divide between G-19 and the USA remains climate control and trade with President trump winning minor concessions on steel concerns.The US has argued unfair steel dumping practices are hurting US jobs. But with the market opening at or near Friday’s closing prices, G20 is being viewed as a non-event by market participants.

Currency movements are remarkably placid in early trade as dealers continue to digest Friday’s Non-Farm Payroll data. While there was an uptick in USD volatility after a weaker than expected  Average Hourly wages,  with many focusing on wage numbers, the overall report was not particularly USD negative with stronger jobs, positive revisions and a higher participation rate. Hence the sudden USD sell off was followed by the rapid knee-jerk higher.While the wages component does little to increase the September rate hike probability, the positive growth narrative does extend the length of the rate hike cycle.

The weaker wage growth buys the Fed more time to wait for inflation signals to pick up before increasing rates which supports the current market view of balance sheet announcement in September followed by a rate hike in December. With no change in the sentiment, the dollar is trading neutral in early Asia and equities remain bubbly. Ultimately the Goldilocks NFP  is a win-win for the US  dollar and global equities; the headline keeps US rate hike expectations on track while the lower inflation print suggests a slower pace of normalisation. 

Given the growing decouple between wages and the employment data I suspect the markets will begin to view the CPI more impactful on Fed policy rather than the job prints as we move through the second half of 2017. So look for this weeks USD CPI print to be heavily scrutinised by traders

Canadian Dollar

The Loonie was the market showstopper as  Friday’s  Canadian payrolls data came in above market expectation.The Canadian Dollar has quickly cleared the last impediment to an all but guaranteed rate hike this week. Well, as guaranteed as one can be in the Forex Markets. But the potent combination of data and  Governor Poloz’ interview just before the blackout week, has traders all aboard this rate hike bus.  

Japanese Yen

With the market banking on end to Central Banks perpetual money printing machines and as s markets yield to this adversity, a surprising pivot by BoJ has policy divergence between the US and Japan back to the fore The BoJ caught traders leaning the wrong way last week after conducting aggressive bond buying operations. It’s hard not to remain constructive on the USDJPY given the divergence narrative, and we could see the USDJPY push higher early this week. 


It’s a quiet week on the EU data front, but the move to normalisation is more than just a Fed story. The EURO will continue to move in sympathy with the selloff in EUR fixed income.And given we’re in the early stages of this EU bond move, the market is positioning long Euro. Last week’s  ECB minutes were very bearish for bonds, even after the Draghi hawkish tilt the week prior. The key within the ECB minutes was the bank’s discussion around removing the pledge to increase bond purchases. It’s now a case of when and not if. 

Australian Dollar

While the RBA is likely a long way from walking the path of interest rate normalisation, the Aussie should catch a ride on the broader US dollar weakness, so dip demand remains. But the US interest rate trajectory continues to be the primary driver, and with the Feds likely in no rush to raise rates given the tepid inflation outlook, this should feed well into global risk sentiment wich could filter into the Aussie dollar near term. But the ultimate risk for the Australian  currency  remains the US yield curve 

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Stephen Innes

Stephen Innes

Head of Trading APAC at OANDA
Stephen has over 25 years of experience in the financial markets and currently based in Singapore as the Head of Trading Asia Pacific with OANDA. Stephen's market views focus on the movement of G-10 and ASEAN Currencies. His views appear in Bloomberg, CNBC.Reuters, New York Times WSJ and the Economist. His media appearances include Bloomberg TV & Radio, BBC International, Sky TV, Channel News Asia, ASTRO AWANI and BFM Malaysia. Stephen has an extensive trading experience in Spot and Forward FX, Currency and Interest Rate Futures, Money Market Derivatives and Precious Metals. Before joining OANDA, he worked with organisations like Nat West, Chemical Bank, Garvin Guy Butler, and Sumitomo Mitsui Banking Corporation. Stephen was born in Glasgow, Scotland, and holds a Degree in Economics from the University of Western Ontario.
Stephen Innes