US Dollar Mixed After NFP Miss Strong ISM Service Index

Busy week ends with disappointing US jobs report

The US dollar is mixed against major pairs on Friday. The greenback fell when the U.S. non farm payrolls (NFP) report showed the US economy added 261,000 jobs, 50,000 short of the forecast. Despite the upward 18,000 revision to the September figures the biggest miss was the hourly wages remaining flat. The U.S. Federal Reserve is expected to raise interest rates in December, but lack of inflationary pressure will make further tightening monetary policy more complicated.

The Reserve Bank of Australia (RBA) will publish its interest rate statement on Monday, November 6 at 11:30 pm EST. The central bank is expected to leave rates unchanged at 1.5 percent amid low inflation and high levels of household debt. Australian retail sales were below expectations at 0 percent after two months of contraction. Retailers have cut prices to offset slowing demand and another factor to explain the lack of inflationary pressures in Australia.

The Reserve Bank of New Zealand (RBNZ) is due to publish its rate statement on Wednesday, November 8 at 4:00 pm EST. The RBNZ is anticipated to keep rates unchanged at 1.75 percent. This meeting will be the first since the September elections that resulted in a Labour led government that has made it a priority to reform the RBNZ by adding a deeper focus on employment. The NZD has depreciated after the elections as the government is seeking to reform the Reserve Bank Act. The RNBZ has an acting governor, but it is seeking to replace Graeme Wheeler whose term ended in September. The government will leave Grant Spencer as the acting governor at least until March when it could announce a new governor and introduce the reforms to the Reserve Bank Act.

The EUR/USD gained 0.03 percent this week. The single currency is trading at 1.1606 in a week that was full of central bank action and economic releases. It would be hard to see that by just looking at the euro price level at the beginning of the week and compare it to the end of the week. The currency pair is almost flat near weekly lows after the Bank of Japan (BOJ), Bank of England (BoE), Federal Open Market Committee (FOMC) all meet along with the monthly US jobs reports.

The ADP private payrolls report beat expectations with a 235,000 jobs gain, but the main market event the U.S. non farm payrolls (NFP) came under the forecasted figures at 261,000 jobs and a flat wage growth component. The USD had been gaining ahead of the NFP but quickly deflated as low inflation will not help newly nominated Fed Chair Jerome Powell when he takes over in February. The CME FedWatch tool showing a close to 0 percent probability of the US Fed funds rate remaining at the current 100–125 basis points range. A 25 basis points raise is expected as the final market moving decision made under the leadership of Fed Chair Janet Yellen.

Next week will bring little data for investors to digest in Europe and the United States. Weekly crude inventories and unemployment claims in the US will be the highlights in a thin economic calendar.

Canadian dollar weekly graph October 30, 2017

The USD/CAD lost 0.28 percent in the last five days. The currency pair is trading at 1.2775 after the dual release of Canadian and US jobs data. The USD appreciated in the first half of the week and reached its highest point near 1.29 ahead of the November Federal Open Market Committee (FOMC) meeting concluded with a the US central bank holding rates unchanged while in Ottawa Bank of Canada (BoC) Governor Stephen Poloz delivered a dovish testimony on the economy to the Canadian Senate.

The Canadian economy added 35,300 jobs with the gains coming in full time employment. Forecasters had predicted a 15,000 gain. Wages also rose to the biggest gain in 18 months boosting the loonie agains the dollar for a 0.38 percent gain on Friday. The improvement in economic data once again has put forth the argument for another rate hike before the end of the year. The BoC already hiked twice in 2017, but only by enough to return to 2015 levels. The Canadian benchmark rate stands at 1 percent.

West Texas Intermediate graph

The price of energy surged in the last five trading sessions. West Texas Intermediate is trading at $55.52 due to the rise of geopolitical risk in oil producing countries. The Kurdish independence referendum in Northern Iraq will continue to affect supply from the oil rich region, while current prices continue to cause financial headaches for Venezuela who bet heavily on the price of oil to balance its budget. The Southern American nation will seek to restructure its foreign debt, but there is a high risk that it could default compromising the state owned oil company.

The cuts to production agreed by Organization of the Petroleum Exporting Countries (OPEC) and other major producers have achieved stability in the oil market and the promise of extending those cuts have taken oil prices to mid 2015 levels. Doubts still remain on how much demand has really recovered. The stability in prices can be easily disrupted as soon as the US shale industry shakes off the effects of the hurricane season and increases the rig count to take advantage of the rising price of crude.

Market events to watch this week:

Sunday, November 5
10:00 pm NZD Inflation Expectations q/q
Monday, November 6
11:30 pm AUD Cash Rate
11:30 pm AUD RBA Rate Statement
Tuesday, November 7
1:45 pm CAD BOC Gov Poloz Speaks
Wednesday, November 8
11:30 am USD Crude Oil Inventories
4:00 pm NZD Official Cash Rate
4:00 pm NZD RBNZ Rate Statement
5:00 pm NZD RBNZ Press Conference
Thursday, November 9
9:30 am USD Unemployment Claims
8:30 pm AUD RBA Monetary Policy Statement
Friday, November 10
5:30am GBP Manufacturing Production m/m

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza