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US Open Note – Dollar bulls cheer on Nonfarm Payrolls; loonie resilient after Canadian jobs miss



Dollar, Treasury yields gear up after bullish NFP release

The US dollar was in neutral mode until the eagerly awaited nonfarm payrolls report brought the bulls back into play. Employment growth spiked to 943k and above the forecast of 870k, consequently pressing the unemployment rate to 5.4% – the lowest since the 2020 pickup –versus the 5.7% anticipated. Average hourly earnings were another positive surprise, growing faster by 4.0% y/y compared to 3.9% expected.

Dollar/yen bounced immediately to peak slightly above the 110.00 level after the release, while euro/dollar slipped below the 1.1800 level to 1.1780. The pound, however, managed to balance selling pressures around the 1.3900 number and the 50-day simple moving average against the greenback thanks to the hawkish change in the Bank of England’s forward guidance on Thursday.

Notably, the upbeat NFP numbers bolstered optimism in the US economy, helping the 10-year US Treasury yield to run as high as 1.2885% from 1.12510% earlier today as investors shifted away from bonds’ safety.

On the other hand, the strength in the dollar knocked gold below July's range area and to a five-week low of $1,763.

Employment data will remain in the spotlight

Making predictions on how the US labor market will perform in the rest of the year will be a hard job, as the global battle with the pandemic is not over yet. However, as long as the inflation spike does not cause any eyebrow-raising within the Fed, and firm labor momentum remains the key to bond tapering, investors will put strong emphasis on the next two NFP releases.

For example, another cheerful NFP report in early September could induce the Fed to map out the road to tapering at the end of the month, adding extra fuel to the dollar rally. Yet, investors may wisely wait for more notice on the matter during the Jackson Hole symposium on August 26-28. Hence, some dollar volatility at the end of this month is highly likely now.

Biden's infrastructure bill heads for a Senate vote

In other US headlines, a part of Biden’s $1.2 trillion bipartisan infrastructure bill will face a crucial vote on Saturday at the Senate following Thursday’s disagreements. If approved, the plan will head for a final vote within the Chamber before it moves to the House of Representatives in the coming weeks.

Canadian jobs worse than expected

Unlike the US, Canada faced disappointing jobs data for the month of July today, with employment growing by a softer pace of 94k versus 177k expected, and the unemployment rate inching down to 7.5% but coming above the forecast of 7.4%.

Surprisingly, dollar/loonie could not gain significant ground, moving a few pips higher to 1.2540 before pulling slightly lower again. Perhaps the bullish course in oil prices added some footing under the loonie, offsetting the negative impact from the Canadian jobs data.

Turning to stock markets, S&P 500 and Dow Jones are set to open in the green according to futures, while Nasdaq 100 could see moderate losses.

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