Daily Market Comment – Dollar slides despite solid nonfarm payrolls

  • Surprisingly strong US jobs report cannot revitalize dollar rally

  • Stock markets storm back to erase losses, OPEC stands pat

  • China relaxes some covid restrictions, RBA decision eyed

Conflicting signals in US jobs data

There was no shortage of volatility in the FX complex on Friday. While the latest batch of US employment data was strong on the surface, with nonfarm payrolls exceeding projections and wage growth firing up, the dollar could not capitalize for long.

Signs that the economy is still in good shape propelled the reserve currency higher initially, yet the rally ran out of steam as investors parsed through the report and found some dark spots. There was another dichotomy between the payroll and household surveys, with the former pointing to a booming labor market whereas the latter revealed job losses, putting traders on high alert.

The conflicting signals meant this report was unlikely to move the needle for the Fed, hence the ensuing whipsaw in markets. A 50bps rate increase is fully baked in for next week, followed by a similar move early next year that pushes rates to their final destination, just below 5%. The ISM services survey later today will help shape expectations around this path.

As for the dollar, it’s still too early to envision a bearish trend reversal, despite the latest retreat. Historically speaking, a softer Fed profile is not enough to turn the tide in the dollar - it also requires an improving economic outlook in the rest of the world to siphon capital out of America, which is currently not the case.

Other major economies are in worse shape than the United States, as the nation’s vast energy production helped shield it from the power shock that has ravaged Europe. Therefore, while leading indicators suggest the US is also staring down the barrel of a recession, it might need a few more quarters to reach that point, making any reversal in the dollar seem like a story for the second half of next year.

Wall Street rebound, OPEC inaction 

There was a similar turnaround on Wall Street, which recouped some heavy losses to finish nearly unchanged. Equity markets have come a long way in the last couple of months. The S&P 500 has rallied some 16% off its lows, with cooler US inflation data and hopes of a more cautious Fed serving as fuel for the advance.

Nonetheless, it is difficult to trust this recovery as the fundamentals haven't really changed. Valuations remain expensive and the data pulse continues to weaken as higher interest rates dampen economic activity, making the rosy earnings estimates for next year seem vulnerable to negative revisions.

Oil prices are trading higher on Monday, even though OPEC did not ride to the rescue by slashing its production. Instead, some news about China relaxing its covid restrictions may have helped paint a brighter picture for demand. There is also an element of hesitation in energy markets, with several key players taking the sidelines to observe how the EU ban on Russian crude and the $60/barrel price cap of the G7 nations will impact prices.

China relaxes curbs, RBA decides

All the buzz in the markets today is about some Chinese cities relaxing covid restrictions. While these are only minor steps, investors clearly view them as the blueprint towards a full reopening, judging by the 4% rally in Hong Kong equities.

As always, what happens in China will be crucial for currencies of nations that rely on Chinese demand to absorb their commodity exports, like the Australian dollar. The Reserve Bank of Australia will meet overnight and although market pricing is leaning towards a quarter-point rate increase, it also assigns a 25% chance for no changes at all.

The jobs market and wage growth dynamics are still solid, yet house prices are falling quickly and the RBA is worried that a global recession next year could sap commodity demand. One way to balance these risks would be to raise rates but softly open the door for a pause next year.

Disclaimer: le entità di XM Group forniscono servizi di sola esecuzione e accesso al nostro servizio di trading online, che permette all'individuo di visualizzare e/o utilizzare i contenuti disponibili sul sito o attraverso di esso; non ha il proposito di modificare o espandere le proprie funzioni, né le modifica o espande. L'accesso e l'utilizzo sono sempre soggetti a: (i) Termini e condizioni; (ii) Avvertenza sui rischi e (iii) Disclaimer completo. Tali contenuti sono perciò forniti a scopo puramente informativo. Nello specifico, ti preghiamo di considerare che i contenuti del nostro servizio di trading online non rappresentano un sollecito né un'offerta ad operare sui mercati finanziari. Il trading su qualsiasi mercato finanziario comporta un notevole livello di rischio per il tuo capitale.

Tutto il materiale pubblicato sul nostro servizio di trading online è unicamente a scopo educativo e informativo, e non contiene (e non dovrebbe essere considerato come contenente) consigli e raccomandazioni di carattere finanziario, di trading o fiscale, né informazioni riguardanti i nostri prezzi di trading, offerte o solleciti riguardanti transazioni che possano coinvolgere strumenti finanziari, oppure promozioni finanziarie da te non richieste.

Tutti i contenuti di terze parti, oltre ai contenuti offerti da XM, siano essi opinioni, news, ricerca, analisi, prezzi, altre informazioni o link a siti di terzi presenti su questo sito, sono forniti "così com'è", e vanno considerati come commenti generali sui mercati; per questo motivo, non possono essere visti come consigli di investimento. Dato che tutti i contenuti sono intesi come ricerche di investimento, devi considerare e accettare che non sono stati preparati né creati seguendo i requisiti normativi pensati per promuovere l'indipendenza delle ricerche di investimento; per questo motivo, questi contenuti devono essere considerati come comunicazioni di marketing in base alle leggi e normative vigenti. Assicurati di avere letto e compreso pienamente la nostra Notifica sulla ricerca di investimento non indipendente e la nostra Informativa sul rischio riguardante le informazioni sopra citate; tali documenti sono consultabili qui.

Facciamo ricorso ai cookies per offrirti la migliore esperienza possibile sul nostro sito. Leggi maggiori informazioni o modifica le tue impostazioni dei cookie.

Avvertenza sul rischio: Il tuo capitale è a rischio. I prodotti con leva finanziaria possono non essere adatti a tutti. Ti chiediamo di consultare attentamente la nostra Informativa sul rischio.