Week in FX Americas – NFP Hurts Yields, But Aids EM Currencies

A disappointing non-farm payroll has caught the forex market flat-footed. Fx is taking its lead from US fixed income yields. Many investors were looking for a healthy +185k print with an unemployment rate easing to +7.5%. They did in fact get a healthier jobless rate (+7.4%), however, it was heavily influenced by a lower participation rate. Many had been expecting US 10-year yields to be making an assault on +2.75-80%, a rate that would have had USD/JPY making a strong case to test deep into the psychological ¥100 territory. Instead US 10’s is making a case to revisit the +2.50-55% level first.

What investors got was a softer headline (+ 162k) in July, along with negative revisions to June (+188k from +195K) and May (+176k from +195k). The unemployment rate sank to +7.4%, having been expected to edge down to +7.5%. Average hourly earnings (+0.2%) edged down to +0.1%, while the workweek slipped to 34.4 hrs (34.5 hrs). All together this has made for a soft report across the board.

Where to from here? Many will expect emerging market currencies to get some sort of reprieve from here in the short term at least. Already some EM currencies like the BRL and MXN have jumped to a session high against the dollar. There is a strong case for investors to take advantage of the already cheap levels in many of these EM currency bucket. Some investors will take today’s job report to mean that the Fed may not be in a hurry to draw down its stimulus in the short term. By default it should provide more support for these currencies. However, for further US yield and dollar losses, investors will have to hear from the Fed that a September taper is no longer on their cards.

• Oil Reserves in the US Hit Record Gain
• US Consumer Spending and Inflation Rise in June
• US Jobs Slow Down But Unemployment Rate Reaches Four Year Low
• US Fed Maintains 85 Billion Bond Buying in Place Next Risk Lack of Inflation
• Oil Retreats After Higher than Expected Inventories Reported
• Canada GDP Expands For Fifth Month in a Row
• ADP Private Job Report Prints 200,000 New Jobs in July
• US Economy Surprises with 1.7 Percent Growth in Q2
• US Consumer Confidence Falls in July
• Fed Unlikely to End Bond Buying Yet But Could Give More Details Soon
• RR Era’s Fed Chairman Heller: US will grow at 3–4%

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