Nonfarm Payrolls massively under-performs
The US dollar plummeted after the huge downside miss on the Non-Farm Payrolls gave weight to the lower-for-longer mantra from the Federal Reserve. After an initial bout of two-way volatility post data, markets also decided the easy money for longer was positive for asset markets and would support the global recovery. As a result, a massive rotation out of defensive US dollar positioning occurred, with the dollar index tumbling by 0.73% to 90.22. Although slightly higher this morning, the dollar index crashed through support at 89.45 on Friday and should now target 90.00 and then 89.60 in the days ahead.
The euro was a notable beneficiary of US dollar largesse, EUR/USD adding 100 points to 1.2160, closing above resistance at 1.2150. It should remain bid on dips now with an initial upside target of 1.2250. Sterling was boosted by a weak US dollar on Friday, rising 0.70% to 1.3980. Supportive results from the Scottish elections this week have seen it rally through resistance at 1.4000 to 1.4020, although it has given back some of its early Monday twilight zone gains. The break of 1.4000 is significant, and a close above 1.4000 today signals GBP/USD is set to rise to 1.4300 in the weeks ahead. The US/Japan rate differential continues to support USD/JPY, which remains in no man’s land around 109.00.
The risk-sensitive Australian and New Zealand dollars rose on Friday, with AUD/USD climbing 0.80% to 0.7850, taking out its triple top at 0.7820. Given the moves in commodity prices today, AUD/USD should now target 0.8000 this week, assuming nothing changes the recovery narrative. NZD/USD rose 0.60% to 0.7275 on Friday, probing resistance at 0.7300 this morning. A rally through 0.7300 targets further gains to 0.7450.
Asian currencies also rallied on Friday, notably the Chinese yuan, Malaysian ringgit, Singapore dollar, Indonesian rupiah and Indian rupee, which may be boosted by sagging imports taking pressure off the currency as fewer US dollars are converted. The PBOC set today’s USD/CNY fix at 6.4425, but USD/CNY has already diverged in OTC trading, falling to 6.4250. The strengthening of the CNY divergence from the official fixing indicates that Asian currencies remain a buy on dips versus the US dollar as the week commences, with global recovery momentum powerfully in the ascendant.
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Jeffrey Halley
He has previously worked with leading institutions such as Saxo Capital Markets, DynexCorp Currency Portfolio Management, IG, IFX, Fimat Internationale Banque, HSBC and Barclays.
A highly sought-after analyst, Jeffrey has appeared on a wide range of global news channels including Bloomberg, BBC, Reuters, CNBC, MSN, Sky TV and Channel News Asia as well as in leading print publications such as The New York Times and The Wall Street Journal, among others.
He was born in New Zealand and holds an MBA from the Cass Business School.
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