US Dollar Turns Negative

Daily Analysis - 09/10/2017

North Korean Fears Lift Yen as Missile Test Preparations Dent Risk Sentiment

The US dollar is trading close to the lows of last week against the Japanese Yen amid heightened geopolitical concerns following reports that North Korea may be preparing for yet another missile test. Sentiment was hit hard by this development, lending support risk aversion assets and notably the safety of the Yen.

Profit-Taking in Greenback Intensifies

North Korea’s preparations to test a long-range missile that can potentially reach the US west coast has stirred up risk sentiment once again. Confirmation of this development comes from a Russian lawmaker, who had returned from a visit to Pyongyang. After initially surging higher on a hurricane-ridden September jobs report that showed the first contraction in employment creation in seven years, the US dollar turned negative against most major currencies on Friday.

Nonfarm payrolls fell by -33,000, undercutting market estimates of a 90,000 gain despite the unemployment rate falling to 4.20%. USDJPY spiked to a 12-week high on Friday before sliding lower, with the pair was last seen around 112.550. On the downside, the area around 112.200 marks a key support zone, with any breach below potentially causing a deeper selloff. Trading is in the Yen is thinner than normal owing to a public holiday in Japan.

China Services Growth Slips to 21-Month Low

Activity in the Chinese services sector grew at its slowest pace in 21-months through the end of September. A leading private survey conducted by Caixin-Markit showed that the nation’s Services PMI fell to 50.6 last month, the lowest reading of the gauge since December of 2015. Following the index reaching a three-month high of 52.7 in August, the rate of new business growth slowed, while expectations for the upcoming 12 months dipped to the lowest level in a year.

The survey results sharply contrasted with the official non-manufacturing PMI that suggested the services sector was expanding at its fastest clip since 2014 through the end of September. In the meantime, dollar weakness has seen the USDCNH pair tumble below key support at 6.6350 to last trade around the 6.6265-mark.

UK Productivity Declines for a Second Quarter

Figures published by the Office for National Statistics on Friday showed that British labour productivity fell for the second straight quarter, underscoring one of the key challenges facing the economy as Brexit approaches. Labour productivity, as represented by output per hour, dropped -0.10% in the three months to June following a -0.50% contraction in the first quarter of 2017.

Manufacturing productivity slumped by -1.30% while services productivity edged 0.20% higher. British productivity continues to lag major trading partners like the United States, Germany and France. Once the exit from the European Union is complete, the prospect of fewer skilled workers coming to the UK will make catching up even harder, which in turn, could further dent business investment. GBPUSD slid to a one-month low on Friday before mounting a rebound in Monday morning trade and edging back above 1.3100.

Canadian Wage Growth Accelerates

In a development that may potentially rekindle the prospect of the Bank of Canada raising interest rates for a third time this year, wage growth in Canada accelerated at its fastest rate in more than a year during September. Data from Statistics Canada announced on Friday exhibited average hourly wages for permanent employees gaining 2.20% last month from the year ago period.

On a seasonally adjusted basis, the economy added 10,000 jobs in September, just below the consensus forecasts calling for a 12,000 position advance while the jobless rate remained at 6.20%, beating market expectations of a slight increase. The latest acceleration increased hopes of a recovery in wage growth, which has been weak despite solid labour market gains. The USDCAD pair is climbing back from the lows of Friday to last trade around 1.2530.