NFP to ‘infinity and beyond’-hardly

Perfect, the SNB has to get’s full marks. Everyone expected intervention, however their timing was impeccable. The European market basically had ‘knocked off’ for the holiday weekend, providing an environment with little liquidity where the Cbank would get the best ‘bang-for-their-franc’. But, what have they succeeded in doing? Dragging us back to the levels of last week? It was hardly worth all that effort. While the ‘sane’ celebrate Easter, the rest of us have to attend to this morning highly anticipated US Pay-Roll report. The market has been ‘giddy’ in their expectations over the last few weeks with estimates ranging from +100k to a ballooning +750k. We all know that the final number will be Census padded, but, by how much? Will this week’s disappointing private ADP headline bear any resemblance to the NFP print? If so, investors will want to stay on holidays.

The US$ is stronger in the O/N trading session. Currently it is higher against 12 of the 16 most actively traded currencies in a ‘subdued’ holiday trading range.

Forex heatmap

As noted yesterday, US jobless headline prints are returning towards their year-ago levels. The initial claims (+439k vs. +445k) headline is back to pre-blizzard reporting, similar to late Jan. and early Feb. This bodes well for job growth over the next few months. Analysts continue to point out that the numbers could be heavily distorted by Census hiring, but they expect growth in the private sector to fill ‘this void’. Digging deeper, continuing claims remained relatively flat over the week (+4.662m vs. +4.668m). The federally funded extended-benefits program (provided an extra 20-weeks above continuous) has expired, but happened to fall -16.2k to +137k. Slightly disturbing was the emergency unemployment claims printing another new high (+5.63m vs. +5.89m). This program is expected to end next week. The Markets would not be surprised to see this program extended once again.

US Manufacturing expanded last month at the fastest pace in nearly six-years yesterday (+59.6 vs. +57), further proof that factories should be ‘a’ backbone for the continued recovery in the US over the coming months. Manufacturing and export driven growth continues to give the US economy a leg up, pushing the country towards the recession exit and into an expansionary environment. All this, should filter down and create an ever expanding job market. With liquidity and holiday trading in place, it’s going to be interesting to see how the markets will digest NFP this morning.

The USD$ is higher against the EUR -0.23%, GBP -0.22%, CHF -0.24 % and JPY -0.06%. The commodity currencies are a tad weaker this morning, CAD -0.35% and AUD -0.20%. Forget infinity, forget parity, Canada is staring at a ‘premium’ to its southern neighbor. Commodities, equities and every piece of economic data cannot trip up the currency’s momentum presently. Everything the global economies want, Canada has it. This ‘one-directional over-saturated trade’ has lemmings counting the profits. Data this week surpassed all expectations. Canadian m/m growth (+0.6% vs. +0.5%) signals a robust recovery with key elements pointing towards a compounded growth rate of almost +8%. It appears that growth rates are coming in much stronger than Governor Carney and his policy makers expected. In Jan. they pegged 1st Q growth at +3.5%, the market is looking for something in the range of +5.5%. With data like this, it’s difficult not to love the loonie. Maybe it’s the calm before the storm, the storm being NFP today. Or has Canada really adjusted itself to living with parity finally? To date the USD rallies have been shallow and are met with strong resistance. The trend remains your friend.

Weaker fundamental data out of Australia this week has been able to slow the pace of acceleration of their domestic currency. Firstly, the Australia’s trade deficit (-1,92b vs. -1.34b) widened more than analysts expected last month, as ‘miners imported equipment needed to meet surging Chinese demand for commodities’. Secondly, the manufacturing index slipped -3.6 ticks to 50.2 on fewer new orders for consumer goods in Mar. A weaker expansion among manufacturers may give Governor Stevens the ammo to ‘slow the pace of interest rate increases after he boosted borrowing costs four times in the past five meetings’ next week. It seems that the Cbank is getting the job done as the interest-rate increases are cooling domestic demand. The market should expect the AUD to remain under pressure, especially after the currency outperforming in the last week in anticipation of ‘this’ hike (0.9188).

Crude is higher in the O/N session ($84.87 up +111c). There are a number of reasons that have kept crude prices afloat this week. Firstly, month-end dollar selling has favored most commodities. Secondly, Japan’s Tankan report of business sentiment showed its fourth straight quarter of improvement and finally, most global fundamental reports exceeded expectations. Gains yesterday were pared after touching a 17-month high on concerns for this morning payrolls number and the fallout from the weekly inventory reports. This week’s EIA report showed that crude stocks rose by +2.9m barrels to +354.2m last week. The market had been expecting an increase of +2.4m. The surprising factor in the report was that gas inventories recorded a modest gain, unlike the previous couple of weeks. Stocks increased +313k barrels to +224.9m w/w vs. a forecasted decline of -1.85m barrels. This week, we have seen the Euro-zone economic sentiment increasing and the US consumer spending rising, factors that are pressurizing bears from their course of action. Other reports showed that OPEC’s crude-oil production slipped from a 14-month high last month. Technical analysts have their eye on $90 by year end.

There is nothing like stronger fundamentals to give commodities a boost. Global equities pushed higher as economic report after economic report exceeded most analysts’ expectations. A weaker greenback also happened to lend a helping hand. The yellow metal continued its month end, quarter end, momentum as investors sought an alternative to currency investments yesterday. This mornings NFP release may conjure up a ‘new’ trading scenario. Fundamentally, it’s been expected that the ‘yellow metal’ would find stronger traction as investors seek an alternative to an ‘on going weakening’ of the EUR and low interest rates. The dollar’s direction remains the strongest indicator to wanting the metal or not ($1,126).

The Nikkei closed at 11,286 up +42. The DAX index in Europe was at 6,235 up +82 (holiday); the FTSE (UK) currently is 5,744 up +65 (holiday). The early call for the open of key US indices is higher. The US 10-year backed 2bp yesterday (3.87%) and is little changed in the O/N session. Treasury prices managed to soften after a surprising US manufacturing and weekly claims print. Yesterday, the Treasury announced its auctions amounts for next week (3’s-40b, 10’s-21b and long-bond-13b). As we witnessed last week, government supply has been a bearish factor for bonds. Traders will want to make room to take down the issues.

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Dean Popplewell

Dean Popplewell

Vice-President of Market Analysis at MarketPulse
Dean Popplewell has nearly two decades of experience trading currencies and fixed income instruments. He has a deep understanding of market fundamentals and the impact of global events on capital markets. He is respected among professional traders for his skilled analysis and career history as global head of trading for firms such as Scotia Capital and BMO Nesbitt Burns. Since joining OANDA in 2006, Dean has played an instrumental role in driving awareness of the forex market as an emerging asset class for retail investors, as well as providing expert counsel to a number of internal teams on how to best serve clients and industry stakeholders.
Dean Popplewell