Market wrap: US dollar underperformed all the majors – Westpac

Analysts at Westpac Banking Corporation explained that markets read the US jobs data as mixed (strong job growth but disappointing unemployment and earnings), pushing the US dollar lower.

Key Quotes:

“Equity markets liked the report, though, the S&P 500 closing up 0.9%. June non-farm payrolls rose 213k (expected 195k) and the May level was revised higher to 244k (from 223k), but the positive headline was subdued by average hourly earnings rising a sluggish 0.2% m/m, remaining at 2.7% y/y (expected 0.3% and 2.8%).

Additionally, there was a rise in the participation rate to 62.9% from 62.7% which pushed the unemployment rate higher to 4.0% (previous 3.8%, expected 3.8%). (Recall that unlike in Australia, the US unemployment rate is calculated using a separate survey from the headline payrolls number).

The US dollar underperformed all the majors. EUR/USD rose from 1.1700 to 1.1767. USD/JPY fell from 110.70 to 110.40. AUD ground higher from 0.7380 in the Sydney afternoon to 0.7435, punctuated by a brief spike to 0.7444 after the US jobs report. Outperformer NZD similarly rose from 0.6800 to 0.6845. AUD/NZD edged slightly lower.

Canadian June labour data was released at the same time as the US report. As with US, there was a rise in participation which caused the headline unemployment rate to rise to 6.0% (from 5.8%) and net job growth of 31.8k (exp. 20.0k) was reliant on a sharp shift to part-time workers. USD/CAD was whippy around the data but then followed the broad USD trend, down 0.5c to 1.3090.

GBP/USD rose about 0.6c to 1.3280 Friday and popped above 1.3320 at Monday’s open, as markets welcomed the weekend UK Cabinet meeting on Brexit. Negotiations should now restart with vigour and a softer, longer transition form of Brexit is becoming more likely. The compromise on physical goods and also agriculture specifically should avoid the worst concerns about border seizure. Financial sector and services in general are still to be ironed out but again ground work is in place for negotiation.

US 10yr treasury yields are little changed overall. They spiked lower on the mixed job report, from 2.83% to 2.81%, but later retraced. Two year yields behaved similarly but were contained inside 2.53% and 2.55%. Fed fund futures yields continued to price 1 ½ more hikes in 2018.”