It was a relatively quiet day for most major currencies, even with noteworthy moves from the Loonie and yen.
Slightly more hawkish remarks from BOC official Wilkins caused quite a turnaround for the Loonie during the session while lingering trade concerns kept safe-havens supported.
- U.S. Challenger job cuts up 13.7% in August, -4.2% previous
- ADP non-farm employment change at 163K vs. 195K forecast, 217K previous
- Canadian building permits dipped 0.1% vs. projected 1.1% gain
- U.S. initial jobless claims down from 213K to 203K vs. 214K forecast
- ISM non-manufacturing PMI up from 55.7 to 58.5 vs. 56.8 forecast
- U.S. Markit final services PMI downgraded from 55.2 to 54.8
- FOMC member Williams: No need to hike more quickly than gradual pace
- Williams: Low wage growth still an issue, shows economy has room to run
- Fed official Evans: Should hike ‘likely a bit beyond’ neutral
- BOC Senior Deputy Gov. Wilkins: Discussed dropping ‘gradual approach’ to hikes
- Wilkins: Higher rates will be warranted to achieve inflation target
- Wilkins: NAFTA uncertainty deterring businesses from investing
Mixed U.S. jobs data
A handful of medium-tier U.S. employment reports were printed during the session, with most hinting at a slowdown in hiring for August.
First off, Challenger, Gray & Christmas reported that companies announced 38,427 in planned job cuts for the month, its third-highest figure for the year. As it turned out, this may be indicative of companies looking at global market conditions and making the necessary payroll adjustments.
In particular, industrial goods manufacturers led the layoffs, attributing most of these to tariffs, followed by consumer products manufacturers. On a less downbeat note, hiring announcements also ticked higher during the month, mostly coming from tech companies.
Next up, the August ADP non-farm employment change reading landed at 163K, lower than the forecast at 195K and the earlier 215K increase. The services sector led the gains, adding 139K jobs for the month, while the goods-producing sector contributed 24K in hiring.
This report revealed that employment gains were seen throughout most industries, except the natural resources and mining sector that shed 1K jobs last month.
Lastly, the ISM non-manufacturing PMI beat expectations by surging from 55.7 to 58.5, outpacing the consensus at 56.8. Components of the report revealed that the employment sub-index rose from 56.1 to 56.7 during the period, reflecting a faster pace of increase.
Furthermore, business production was responsible for most of the pickup as the reading rose from 56.5 to 60.7. New orders, supplier deliveries, and the backlog of orders were also notably higher in August.
Hawkish remarks from Wilkins
Bank of Canada’s Senior Deputy Governor Carolyn Wilkins had a speech called “An Update on Canada’s Economic Resilience” in Saskatchewan, and this contained a few juicy details on the central bank’s policy decision earlier in the week.
If you recall, the actual announcement didn’t really spur that much of a reaction from Loonie pairs since only slight changes in their statement were seen. However, Wilkins shared that the Governing Council actually “discussed whether the gradual approach to raising rates that we have been taking over the past year remains appropriate.”
Furthermore, she explained:
“It is a natural question to ask, given that the economy has been operating at potential for the past year and it is in this part of the cycle when interest rates typically rise to preempt a buildup in inflation pressures.”
Wilkins even noted that protectionist measures could boost overall inflation, especially since the economy is operating near full capacity. Although she acknowledged headwinds from trade and that NAFTA uncertainties are deterring some businesses from investing, she assured that the Canadian economy is on solid footing.
Not-so-upbeat remarks from Williams
FOMC voting member Williams wasn’t feeling all that hawkish as he mentioned that there’s no need for the Fed to step on the gas when it comes to their gradual tightening approach.
In particular, Williams highlighted slow wage growth as a persistent challenge, explaining that this signals there’s still room to let the economy run.
On the other hand, Fed official Evans was a bit more upbeat in citing that the central bank should raise rates to neutral and “likely a bit beyond” as higher inflation would warrant more tightening.
Major Market Mover(s):
The Loonie was actually off to a shaky start as another day in crude oil declines weighed on the correlated Canadian currency.
However, the tide turned when BOC official Wilkins shared that policymakers actually discussed changing their gradual approach to hiking.
USD/CAD initially climbed to a high of 1.3227 before tumbling sharply to a low of 1.3128; CAD/JPY was down to a low of 83.75 before it popped up to 84.45; EUR/CAD is down to 1.5282, and GBP/CAD fell back to the 1.7000 mark.
With risk-off vibes still lingering and traders hesitant to buy the dollar, the lower-yielding Japanese currency was able to rake in some gains.
USD/JPY slumped from 111.30 to 110.51; EUR/JPY slipped from 129.45 to 128.38; GBP/JPY fell from 143.94 to 142.75; AUD/JPY is down to 79.41, and NZD/JPY dropped to 71.98.
The Swiss franc was also on a good run for the session, taking advantage of risk aversion and feeble demand for the U.S. dollar.
USD/CHF is down from .9695 to .9654; EUR/CHF carried on with its slide to 1.1218; AUD/CHF tumbled below the .7000 mark; NZD/CHF is down to .6361, but CHF/JPY consolidated around 114.50.
Watch Out For:
- 11:30 pm GMT: Japanese household spending (-0.9% expected, -1.2% previous)
- 11:50 pm GMT: Japanese average cash earnings (dip from 3.3% to 2.4% expected)
- 1:30 am GMT: Australia’s home loans (-0.1% dip expected, -1.1% previous)
- 5:00 am GMT: Japanese leading indicators (drop from 104.7% to 103.5% expected)