US Dollar Weakens Even as Jobs Data Betters Forecasts

Australian Dollar Benefits as Chinese Service Sector Gains Steam

A surprise improvement in the latest Chinese services PMI encouraged investors to pile into the Australian Dollar ahead of the weekend. As the world’s second largest economy demonstrated fresh signs of resilience the general mood of markets improved, to the benefit of the risk-sensitive AUD. Even though December’s US labour market data also bettered forecasts this was not enough to knock AUD exchange rates off their bullish footing.

If this morning’s manufacturing PMI shows solid growth on the month demand for the Australian Dollar could pick up further.

Pound Struggles to Capitalise on Improved UK Services PMI

Investors were pleasantly surprised to find that the UK services PMI had picked up from 50.4 to 51.2 in December, moving further away from the risk of contraction. This improvement offered a leg up to the Pound on Friday, even though the underlying details of the report were not entirely positive in nature. With signs still pointing towards business confidence and the growth outlook being weighed down by Brexit-based uncertainty GBP exchange rates struggled to make any significant gains.

As markets brace for the reopening of Parliament the mood towards the Pound is likely to sour further, driven by Brexit speculation.

Eurozone Inflation Slump Weighs on Euro

The Eurozone consumer price index fell short of forecast in December, easing from 2.0% to 1.6% on the year. This decline sets the inflation rate below the European Central Bank’s 2% target, diminishing the likelihood of interest rates rising in the months ahead. Coupled with the discouraging nature of the final round of Eurozone PMIs for December this left EUR exchange rates biased to the downside ahead of the weekend.

Further pressure could be in store for the Euro tonight if German factory orders contract on the month as forecast.

US Dollar Weakens in Spite of Stronger Non-Farm Payrolls Print

Even though December’s US non-farm payrolls report bettered expectations this was not enough to give USD exchange rates a boost. As 312,000 jobs were added to the US economy in the final month of 2018, with the participation rate unexpectedly rising, signs pointed towards a further tightening of the labour market. This stronger showing appeared to vindicate the Federal Reserve, paving the way for further policymaker hawkishness this year.

Overnight the US Dollar could fall further out of favour if the ISM non-manufacturing composite index shows a loss of momentum on the month.

Steady Unemployment Rate Fails to Shore up Canadian Dollar

While December’s Canadian unemployment rate failed to rise as forecast CAD exchange rates still came under pressure ahead of the weekend. Investors were disappointed by a weaker-than-expected pace of wage growth, which suggests that the economy is in a less robust state than previously thought. Although oil prices continued to push sharply higher throughout the day this was not enough to prevent the Canadian Dollar losing ground.

Any uptick in tonight’s Ivey PMI could give investors renewed incentive to buy into the Canadian Dollar, though.

Risk Appetite Limits New Zealand Dollar Downside

The general sense of market risk appetite benefitted the New Zealand Dollar on Friday, with the day’s solid Chinese data shoring up NZD exchange rates. Although the case for greater Fed hawkishness improved this was not enough to particularly dent the New Zealand Dollar. However, in the absence of any supportive domestic data NZD exchange rates struggled to extend any significant gains.

Any weakening in risk sentiment would leave the New Zealand Dollar exposed to selling pressure today.

Data Released

January 7th 08:30 AUD Manufacturing PMI (DEC)
January 7th 18:00 EUR German Factory Orders (MoM) (NOV) -0.5%
January 8th 02:00 CAD Ivey PMI (DEC) 56.7
January 8th 02:00 USD ISM Non-Manufacturing Composite Index (DEC) 59.4

Louisa Heath

louisa.heath@torfx.com


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