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Dollar domination was the name of the game as it drew support from a combination of hawkish Fed remarks, rising U.S. bond yields, and upbeat economic data.

In particular, leading jobs indicators turned out much stronger than expected, sending positive vibes ahead of this week’s NFP release.

  • ADP non-farm employment change up from 168K to 230K vs. 185K forecast
  • U.S. Markit final services PMI upgraded from 52.9 to 53.5 in September
  • U.K. Brexit Minister Raab: Aiming for a deal in November
  • U.S. ISM non-manufacturing PMI jumped from 58.5 to 61.6 vs. 58.0 consensus
  • EIA crude oil inventories up 6.8M barrels vs. estimated 1.1M gain
  • Fed head Powell: Very happy with where the economy is
  • Powell: Fed to gradually raise rates to ensure inflation stays tame
  • FOMC official Mester: Gradual pace in hiking still appropriate
  • FOMC official Barkin: Watching five metrics to assess economic potential

Major Events/Reports:

Impressive U.S. data

Uncle Sam’s latest batch of reports blew competition out of the water as it signaled that the economy might be in for even stronger days ahead.

The ADP non-farm employment change reading, which some consider as a preview of the official NFP report, jumped from an upgraded 168K to 230K in September versus expectations at 185K. Jobs gains were broad-based across industries and company sizes.

Meanwhile, the ISM non-manufacturing PMI also printed a stellar reading of 61.6 from the earlier 58.5 figure instead of dipping to the consensus at 58.0. Underlying data revealed that the jobs component surged from 56.7 to 62.4 to reflect a strong pickup in services sector hiring, which accounts for a huge chunk of overall employment.

Other components such as business production, new orders, supplier deliveries, prices, and imports also showed gains for the month, signaling that activity and outlook for the industry is robust.

Lastly, the Markit version of the services sector PMI enjoyed an upgrade from the initially reported 52.9 figure to 53.5, reflecting a stronger pace of industry expansion. However, this was lower compared to the 54.8 figure in August and is its weakest level since the start of the year.

On a less downbeat note, its employment component still managed to impress with job creation at its fastest pace in over four years.

Hawkish Fed remarks

Fed head honcho Powell reiterated most of his comments from an earlier speech, but the latest ones seemed to carry more weight as these were underscored by data. It also helped that this positive outlook was echoed by a handful more hawkish remarks from his FOMC peers.

Powell highlighted how inflation is almost at their 2% goal and that unemployment is at its lowest level in 20 years, adding that he is very happy about where the economy is. He also mentioned how the Fed would keep gradually raising rates to ensure that inflation stays tame.

During the Q&A, Powell acknowledged that there was no need for low interest rates anymore, citing:

“The really extremely accommodative low interest rates that we needed when the economy was quite weak, we don’t need those anymore. They’re not appropriate anymore.”

Dollar traders also chomped on that bit where Powell suggested that rates might go beyond neutral:

“Interest rates are still acommodative, but we’re gradually moving to a place where they will be neutral. We may go past neutral, but we’re a long way from neutral at this point, probably.”

Prior to Powell’s speech and the U.S. data dump, FOMC voting member Barkin also had a number of positive things to say. In particular, he listed five metrics that he’s currently watching to assess economic potential, namely business investment, productivity growth, compensation growth for job stayers, durable goods prices, and the yield curve. He concluded:

“Growth is solid, unemployment is low and inflation is at target. The challenge is not so much today, but rather ensuring that growth continues.”

FOMC voting member Mester also noted that she doesn’t see the risk of inflation overheating and that the gradual pace of hiking remains appropriate. The rest of her speech mostly focused on community banking and reinvestment while voting member Brainard also spoke mainly on the payments sector.

OPEC and Russia to boost output?

During the session, there were headlines that the OPEC and Russia are willing to increase output in order to keep a lid on prices, possibly giving in to pressure from U.S. President Trump.

A report on Reuters indicated that the oil-producing nations struck a private agreement ahead of their meeting in Algiers with other cartel members. Sources revealed that Saudi Arabia told U.S. representatives that they would pump more barrels gradually and could keep increasing output if their customers asked for more oil.

However, Black Crack prices seemed to shrug off the news, along with the larger than expected build in U.S. stockpiles as the EIA reported a jump of 8.0 million barrels in inventories.

  • WTI crude oil held on to $76.20 per barrel (+1.30%)
  • Brent crude oil cruised at $85.91 per barrel (+0.66%)

Major Market Mover(s):

USD

The scrilla was the king of pips as dollar bulls likely started pricing in positive expectations for the NFP release. The generally upbeat outlook among Fed officials and the climb in U.S. bond yields to record highs also gave a boost.

USD/JPY advanced from 113.82 to a high of 114.55; EUR/USD sank from 1.1568 to a low of 1.1476; GBP/USD slumped from 1.3006 to 1.2943, and AUD/USD is testing the .7100 support.

AUD & NZD

This comdoll duo found themselves behind the rest of their forex peers as they caved to dollar strength.

AUD/JPY sank from 81.39 to 81.24; EUR/AUD advanced from a low of 1.6123 to a high of 1.6178; AUD/CHF is down to .7038, and GBP/AUD rose to a high of 1.8236.

NZD/JPY fell from a high of 74.75 to a low of 74.43; EUR/NZD ticked up from 1.7491 to 1.7665; NZD/CHF sank to .6446, and GBP/NZD is up to the 1.9900 handle.

Watch Out For:

  • Chinese banks still closed in celebration of National Day
  • 1:30 am GMT: Australia’s trade balance (surplus to narrow from 1.55B AUD to 1.43B AUD)