Upbeat Data Lifts Greenback

Daily Analysis - 02/06/2017

US Dollar Reaches 1-Week High Versus Japanese Yen As Risk Sentiment Improves

The US dollar rallied to a one-week high against the Japanese yen early on Friday after better than expected US private sector job numbers provided a boost to the greenback, ahead of the widely watched nonfarm payrolls report due later in the session.

Nonfarm Payrolls in Focus

Data compiled by ADP and Moody's Analytics showed that private US payrolls increased by 253,000 in May, topping the consensus estimate of analysts of anticipating private payroll growth of 185,000.

The ADP report is a precursor to the official nonfarm payrolls figures reported by the Bureau of Labor Statistics which are due later in the session, with positive job creation momentum expected. A Reuters survey of economists is forecasting the addition 185,000 jobs last month, down from April’s 211,000 new positions.

After a string of downbeat economic data points reduced the likelihood of action, a stronger than projected nonfarm count should revive expectations of a rate hike in June from the Federal Reserve.

If the jobs report comes in particularly strong, speculators might also be tempted to unwind significant positions that involved buying the Yen, lifting the greenback further after USDJPY reached a one-week high before a brief pullback.

New Home Sales Rebound in Australia

After falling in two of the prior three months, new home sales in Australia bounced back in April according to a leading industry survey.

The Housing Industry Association’s monthly survey of large builders reported overnight showed that sales of new homes increased by 0.80% in April following a -1.10% decline in March.

Residential property sales have been choppy over the preceding 12-months, with many analysts reckoning that the construction boom is past its peak. However, home prices have been rising at an alarming pace, leading to grim warnings from the Reserve Bank of Australia about risks for financial stability.

The Australian dollar was hit hard in the previous session amid news of a surprise contraction in Chinese private sector manufacturing.

EURAUD has been rising in early Friday trade, with the pair currently trending around 1.5180.

Mexican Factory Activity Expands

Growth in Mexico's manufacturing sector gathered momentum in May, driven by an uptick in output, new orders and employment.

A survey delivered late Thursday from Markit underscored this development, with the Manufacturing PMI climbing to 51.2 from 50.7 in April after being adjusted for seasonal variations. An index reading above 50 indicates expansion, while a figure below suggests contraction.

The Mexican economy posted stronger-than-expected first quarter growth after fears that US President Donald Trump would impose tariffs on Mexican-made goods eased significantly. Close to 80.00% of the country’s exports are directed to the US, comprising mainly of manufactured goods like cars and TVs.

With the USDMXN pair reversing from a six-month low last week, the pair is currently stuck within a narrow trading range above short-term support at 18.5500.

South African Unemployment Rate Climbs to 14-Year Peak

A tumultuous few weeks for the government has been echoed in the economy, with the jobless rate in South Africa increasing to its highest point in 14-years during the first quarter as agriculture, trade and services shed jobs.

The unemployment rate soared to 27.70% of the labour force during the first three months of the year, the highest figure since September of 2003 and topping the 26.50% reported in the final quarter of 2016.

The country's statistics office warned that recent credit downgrades from S&P Global Ratings and Fitch were taking a toll as the Rand depreciated, making imports costlier.

South Africa's economy contracted by -0.30% in the fourth quarter of 2016, posing the threat of a technical recession if GDP figures due for release next Tuesday indicate an ongoing contraction in economic activity.

After a volatile week, USDZAR is currently trading modestly higher around 12.8950.