US Jobs Report to Guide Markets

The US dollar is higher across the board versus major pairs ahead of the U.S. non farm payrolls (NFP) on Friday. The release of private payrolls on Wednesday at 230,000 jobs in September beat the market forecast of 185,000 positions. The NFP is expected to show a gain of 190,000 jobs when it is published on Friday, October 5 at 8:30 am EDT.

The U.S. Federal Reserve raised interest rates last week and strong fundamental data is putting the odds of a December rate hike at 83.3 percent as per the CME’s FedWatch tool. A strong jobs headline and more importantly a solid gain in hourly earnings will make a stronger case for a December rate hike.

• NFP expected to show a gain of 190,000 jobs in August
• Average hourly earnings forecasted to rise by 0.3 percent
• Canadian jobs to rebound with a 25,000 position gain

Dollar Awaits Jobs Report

The EUR/USD is down 0.74 percent this week. The single currency is trading at 1.1517 before the release of the NFP jobs report. Fundamental data in the US has supported the USD at the same time that economic indicators have softened in Europe in tandem with rising concerns about the Italian budget.

Fed Chair Powell’s speech and press conference after the FOMC was a big factor in the rise of the dollar after the market had already priced in the 25 basis points lift to interest rates.

Chair Powell spoke on Wednesday and put forth a gradual rate hike path as the US economy continues to march onwards.

The monetary policy divergence between the Fed and other major central banks was clear last week as fundamentals back the US policy makers who will keep tightening, while questions remain on how effective other monetary policies around the world have been.

The euro regained some ground on Thursday, but investors will await the release of the US jobs report and if solid inflation signals appear will put the single currency under pressure.

Canadian Dollar Lower But Still Shielded by USMCA

The Canadian dollar fell on Thursday as the NFP report approaches. The ADP private payroll report beat the forecast on Wednesday and with it a strong probability of a December rate hike by the Fed.

The loonie is nearly flat on weekly trading as all the gains from the USMCA announcement are gone. The strong monthly GDP last Friday and the USMCA announced on Monday are still shielding the loonie from further loses.

The monthly Canadian GDP data released last week is driving higher expectations of a interest rate lift in October.

The Bank of Canada (BoC) held rates in September ahead of a highly anticipated Fed rate lift that came to pass.

The US central bank has forecasted another rate hike in 2018 and 2 or 3 more next year as part of its economic projections published Wednesday.

BoC Governor Stephen Poloz spoke last week addressing the rising inflation and Friday’s GDP data point puts a rate hike firmly on the table in the short term.

Employment data on Friday will give insight into what the next steps are for the BoC. The NFP will steal most of the spotlight but CAD traders will be expecting a recovery from last month where the economy lost 51,600 jobs.

The losses came mostly in part time positions, but investors will look for signs of wage growth as a positive and to validate the central bank lifting rates later this month.

Oil Tumbles After Rumors of Increased Supply from Saudi Arabia and Russia

Oil prices fell on Thursday after investors took profits on the latest rally.

The biggest factor impacting energy markets is the looming sanctions against Iranian exports. The Iranian supply disruption offset the large inventory data point on Wednesday. Reports of Saudi Arabia and Russia ramping up production to cover the shortfall in supply took energy prices lower.

The drop in supply has kept prices higher with all eyes on Saudi Arabia waiting for signs a production increase after US President Donald Trump has called out the OPEC to do something to bring prices down.

Gold Pressured by Strong Dollar

Gold lost on Thursday, but is still higher on a weekly basis.

The anticipation for the NFP report on Friday could point to another interest rate hike and further pressure the yellow metal.

The Fed raised the benchmark rate by 25 basis points and the futures market is pricing in a 78.5 percent probability of a lift in December.

Friday’s U.S. non farm payrolls (NFP) will be the final test of the yellow metal.

The US is expected to add 190,000 jobs with average hourly earning rising 0.3 percent.

Higher inflation expectations validate the Fed’s forecasts and the market is pricing in a rate hike in December and follow ups in 2019.

Market events to watch this week:

Friday, October 5
8:30am CAD Employment Change
8:30am CAD Trade Balance
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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