Dollar Gains Against Commodity Currencies Ahead of NFP

Oil price hits 2017 lows dragging petrocurrencies down

The US dollar is mixed against major pairs awaiting the release of the U.S. non farm payrolls (NFP) on Friday, May 5 at 8:30 am EDT. The US is expected to have added 190,000 jobs in April with a slight rise of the unemployment rate to 4.6 percent. The bad weather in March was responsible for a drop in the pace of job growth with only 98,000 jobs added. The ADP private payrolls report on Wednesday, showed a healthy increase of 177,000 new positions and the weekly unemployment claims came in lower than expected on Thursday at 238,000. Employment has been the strongest pillar of the economic recovery in the US and if it manages to continue to add jobs at a steady pace the Fed will keep the June rate hike on the table boosting the USD.

The French presidential election is heading to the second round vote scheduled for Sunday. The televised debate between the two candidates Emmanuel Macron and Marine Le Pen was a lively affair, where both managed to score points but in the end it is the centrist Mr. Macron who continues to hold a considerable lead ahead of the final vote but the lessons of the Brexit referendum and the US election should not be ignored.

The EUR/USD gained 0.561 percent in the Thursday session. The single pair is trading at 1.0969, the highest level this year as the lower threat of Frexit after the French debate last night and mixed US economic data in first quarter has the EUR appreciating versus the greenback.

The EUR has advanced despite the U.S. Federal Reserve still keeping the June rate hike option. The European Central Bank (ECB) will continue to diverge from the Fed by keeping its bond buying program in place until the signs of recovery are solid enough. In contrast the US central bank has called the softness of the first quarter as transitory and will look to data for an improvement that shows the economy is turning the corner that could come as early as this Friday with the release of the NFP report.

Oil lost 4.524 percent in the last 24 hours. The price of West Texas is trading at $45.25 a price level similar to that before the OPEC agreed to its production cut. The lack of gasoline demand ahead of driving season in the United States has raised anxiety about the global supply glut of crude and distillates even as the OPEC and other major producers have agreed to cut supply.

US shale producers have ramped up production taking advantage of the price stability of the OPEC deal and forcing the organization into extending the original six month period. The OPEC and other producers will meet on May 25 to discuss the extension.

Gold lost 1.655 percent in the Thursday session. The yellow metal is trading at $1,228.17 headed towards the worst level of 2017 after the U.S. Federal Reserve kept rates unchanged but kept market optimism about a rate hike in June and the GOP was able to pass the vote on health care reform through the House of representatives. The Jobs report on Friday could prove to boost the USD against the metal if warmer weather translated into higher job gains than expected. With lower political risk and higher interest rate forecasts the metal continues trending down.

The French elections will take place on Friday but political risk has been reduced after Macron did well in the debate and is extending his lead to above 60 percent.

The USD/MXN gained 1.311 percent in the last 24 hours. The pair is trading at 19.0545 after the oil drop has dragged the peso lower. Mexican trade data released today showed that the pressure from Donald Trump that drove the currency lower helped exports that recorded an all time high with a 14% gain over last quarter. The Trump administration could use the data to argue for an uneven trade relationship with Mexico when it renegotiates the NAFTA agreement.

The drop in commodity prices also hurt the peso after the currency had recovered in 2017 after enduring the ire of candidate and eventual US President Trump.

Market events to watch this week:

Friday. May 5
8:30am CAD Employment Change
8:30am USD Average Hourly Earnings m/m
8:30am USD Non-Farm Employment Change

*All times EDT
For a complete list of scheduled events in the forex market visit the MarketPulse Economic Calendar

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