- U.S. ADP non-farm employment change at 182K as expected
- U.S. trade deficit narrowed from 48B to 40.8B USD
- Fed head Yellen: Dec interest rate hike a “live possibility”
- U.S. ISM non-manu PMI jumped from 56.9 to 59.1 vs. 56.6 consensus
- U.S. crude oil inventories down from 3.4M to 2.8M barrels
- Canadian trade deficit narrowed from 2.7B to 1.7B CAD
- BOJ monetary policy meeting minutes due
The Greenback skyrocketed against its forex counterparts when Fed head Janet Yellen grabbed the mic, as she mentioned that a December rate hike is a “live possibility” if upcoming data supports the FOMC’s expectations.
Hawkish Fed rhetoric – The Fed head honcho shared that policymakers expect the U.S. economy to “continue to grow at a pace that is sufficient to generate further improvements in the labor market and to return inflation to our 2 percent target over the medium term.” This hawkish view was supported by other FOMC members Dudley and Brainard who acknowledged that the improvements have been encouraging.
U.S. equities reacted negatively to the prospect of increased borrowing costs for consumers and companies, with the S&P 500 index closing 0.35% lower and the Dow Jones Industrial Average down 0.28%, while higher-yielding currencies retreated as well.
Strong U.S. data – The ISM non-manufacturing PMI jumped from 56.9 to 59.1 in October, outpacing the consensus at 56.6 and showing a climb in its employment component as well. The ADP non-farm employment change figure came in at 182K as expected but the previous month’s reading was downgraded from 200K to 190K, which kept forex junkies guessing how the NFP report might turn out.
The trade deficit narrowed from 48 billion USD to 40.8 billion USD in September as exports increased to $127.3 billion while imports decreased to $187.6 billion.
Canadian trade figures – Canada also reported a better than expected trade balance, with its September shortfall shrinking to 1.7 billion CAD versus the projected 1.9 billion CAD deficit. However, the previous month’s figure was downgraded to show a wider deficit of 2.7 billion CAD compared to the initially reported 2.5 billion CAD shortfall.
Components of the latest trade balance release indicated that exports picked up by 0.7% while imports fell by 1.3%. U.S. crude oil stockpiles fell from 3.4 million to 2.8 million barrels but failed to support the positively-correlated Loonie, as risk aversion weighed on commodity prices.
Major Currency Movers
USD and JPY– Dollar bulls took Yellen’s testimony and upbeat economic data as go-signals to charge, fueled by both risk aversion and expectations of higher interest rates, while the yen also took advantage of the risk-off environment.
USD/JPY spiked to a high of 121.70 before consolidating around 121.50, EUR/JPY crashed by nearly a hundred pips to 132.00, USD/CHF surged to a high of .9951, and GBP/USD dipped close to the 1.5350 level.
CAD – Improved economic data from Canada and falling oil inventories couldn’t prop up the Loonie in the risk-off environment. USD/CAD rallied from the 1.3050 minor psychological level to a high of 1.3190, CAD/JPY fell from the 93.00 area to a low of 92.14, and EUR/CAD edged up to the 1.4300 handle.
EUR and NZD – Both currencies were the weakest of the bunch due to dovish central bank rhetoric, putting them at odds with the U.S. dollar which is eyeing a potential rate hike. EUR/USD slipped to a new three-month low of 1.0843 and NZD/USD breached the .6600 barrier to .6588.
Bonnie and Clyde, peanut butter and jelly, Kanye West and Kanye West. Some things just go well together.
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