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September Payrolls Disappoints!

The US economy created fewer jobs than estimates, adding a meager 142k jobs in the month of September while August jobs report was revised lower to 136k. There was further disappointment in the jobs report as the average hourly earnings also dipped lower with the only exception to the data being the unemployment rate which was unchanged at 5.1%. For the markets which were ranging for the most part of the week, the weak NFP was an opportunity as a majority of the currencies gained against the Greenback.

Weekly Review

The British Pound posted solid gains, rising 0.28% on Friday as the currency managed to recover some of the losses offset from the sharp declines earlier. The weak NFP print puts to question the Fed's intentions of a rate hike with at least October now being off the table. Friday’s rally in the GBPUSD brings back the debate on the prospects of the rate hikes from the Bank of England in comparison to the US Federal Reserve. While the futures markets are slowly pushing back rate hike expectations, data from the UK remains firm in comparison. Technically, GBPUSD will see resistance at 1.5386 so long as it manages to stay above the current support at 1.5216 - 1.5131 which has managed to hold prices in the previous three attempts. The biggest gains however came from the unlikely Canadian dollar. Despite the downside risks to the commodity markets, the Canadian dollar managed to hold its ground to the Greenback where prices briefly posted a 11-year high at 1.3456 last month. However, the USDCAD’s trend remains strongly to the upside with the fundamental risk being the monthly jobs numbers from Canada later this week. For the week, the Canadian Dollar gained as much as 1.23% to the US Dollar.

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The Week Ahead

The markets will see a busy week with three Central Bank monetary policy decisions due. First off, the Reserve Bank of Australia will meet on Tuesday, October 6th. The markets widely expect the RBA to keep rates steady and data over the month has been relatively flat but at the same time hasn't declined much to trigger a rate cut. The RBA could however strike a dovish tone in its statement in light of the recent appreciation in the Australian dollar which saw prices briefly test 0.727 last month. A day later, on Wednesday, October 7th, the Bank of Japan meets for its monthly policy review. The consensus points to the BoJ holding steady for this month, but the views are divided with modest expectations that the BoJ could expand its QQE program. It will be interesting to see how this plays out considering that in recent months the BoJ has maintained optimism that the Japanese inflation would head back to the Central Bank's 2% target rate. With USDJPY continuing to trade flat, a surprise expansion from the BoJ could see the Yen eventually weaken further. The UK's Bank of England will hold its monetary policy review on Thursday, the 8th of October. No change is expected as far as rates are concerned, but focus will be on the MPC's official bank rate votes. So far, there has only been one dissenter voting in favor of a 25bps rate hike. UK inflation remains subdued with some estimates pointing to a further dip in inflation in the near term. While it is unlikely to see new dissenters supporting a rate hike, a surprise could however boost the British Pound against a weaker Greenback for the moment. Likewise, there is equally a risk that the lone dissenter, Ian McCafferty could shift back to the dovish camp, in which case, the Pound could come under strong selling pressure.

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