Article / 06 October 2017 at 14:42 GMT

Canada and the US play a game of musical Fed chairs

FX Trade Strategist /
  • Canada employment report supports a BoC on hold
  • Nonfarm payrolls data skewed by Hurricane Irma
  • Holidays on Monday may be precursor to a slow FX week

 Bright lights in Toronto – September jobs gain outshone the US big-time. Pic: Shutterstock

By Michael O'Neill

Canada gained 112,000 full-time jobs in September which is a terrific result by any measurement. USDCAD traders were not impressed. The initial USDCAD selloff from 1.2575 to 1.2546 reversed rapidly. 

That’s because the headline number recorded only 10,000 new jobs which was below the forecast. The employment report did not do anything to suggest that the Bank of Canada would consider raising interest rates again at the October meeting.

Chart: Canadian employment trends
 Source: Statistics Canada

The US nonfarm payrolls report was largely ignored. Nonfarm payrolls showed a loss of 33,000 jobs, well below the 90,000 gain that was forecast. Traders took solace from improvements in average hourly earnings and a drop in the unemployment rate. Hurricane Irma played a major role in distorting the data which is why the report was dismissed.

Last dance for Merry Janet?

Tom Petty sang about the “Last Dance for Mary Jane” in 1993. FX markets are starting to wonder if the next three FOMC meetings are the last dance for Fed chair Janet Yellen.

During the election campaign, Donald Trump said he would replace Yellen if he were president. He is and Janet Yellen is still chair of the Federal Reserve. Her term expires on February 3, 2018.

This past week suffered from a lack of top-tier economic data leaving traders to search elsewhere for direction. They found it in press reports that President Trump was meeting candidates for Janet Yellen’s job. Those candidates included Kevin Warsh, Gary Cohn, Jerome Powell and John Taylor.

At one point, US dollar selling occurred when Politico reported that Treasury Secretary Steven Mnuchin’s pick for Fed Chair was Jerome Powell.

Janet Yellen has been very quiet on the matter and hasn’t publicly said she wants a reappointment.

President Trump is well-known for his inflammatory tweets and rhetoric, and often, they are just attention-seeking noise. The US economy grew during Yellen’s tenure as Fed chair and Trump may just opt for the status quo.

The week ahead

It's another short week for traders in Japan, Canada and the US as all are closed for national holidays on Monday. The rest of the world will wish they had the day off as well, due to a lack of data and liquidity.

Monday, only the China Caixin Service PMI data could have an impact on FX and only if it sharply deviates from August's 52.7 print. Other than that, the day will be a write-off.

Tuesday, NZDUSD bulls will be looking for support from Electronic Card Retail Sales. (previous -0.2%, m/m) Japan releases the Eco Watchers, Current and Outlook surveys for September. German Trade data and UK data will drive trading in Europe. The US data cupboard is rather bare, and with the FOMC minutes due the next day, traders won’t have much incentive to trade.

Wednesday, the UK Inflation Report hearings is the marquee event in Europe. The US data is third-tier leaving traders biding their time until the FOMC minutes get released, in the afternoon.

Thursday, market sentiment following the FOMC minutes will determine the degree of activity in Asia. If the minutes do not provide any surprises, the entire day should be subdued with traders waiting for Friday’s US CPI and Retail Sales reports. Thursday’s US economic calendar is mostly third tier data.

Friday, China could get the ball rolling depending on the outcome of their Trade report. Europe will see a number of inflation reports, but all eyes will be on US September CPI (forecast 2.0% vs previous 1.9%, y/y) and retail sales (forecast 0.4% vs previous -0.2%).

The week that was

Monday US dollar bulls took command in Asia and Europe. China and large swaths of Asia closed for holidays. Japan’s Tankan report was upbeat. EURUSD was pressured, in part, because of the Spanish government’s reaction to the Catalan referendum. Sterling was undermined by Conservative Party infighting at their annual conference, broad US dollar strength and weaker than expected September manufacturing PMI. New York traders didn’t see the dollar like their Asia and European counterparts did. The greenback got some support from better than expected ISM non-manufacturing PMI, allowing it to finish close to flat for the day.

Tuesday, China was still celebrating National Day. The Reserve Bank of Australia left rates unchanged and complained about the level of the exchange rate. AUDUSD was sold. EURUSD recovered losses made in Asian when Eurozone PPI data beat expectations, although liquidity was light due to a German holiday. New York opened with the US dollar posting modest gains compared to Monday’s close. The rest of the day was uninspiring although Wall Street rallied again. A lack of top-tier data and the upcoming US employment report sidelined traders.

Wednesday, the US dollar drifted lower in Asia and Europe. There wasn’t much in the way of data leaving traders to fret about a news article speculating on who the next Fed Chair would be. Dove, Jerome Powell was said to be Treasury Secretary Mnuchin’s favourite which led to US dollar selling. 

President Trump was furiously tweeting about “#FAKE NEWS” after an NBC story claimed the Secretary of State called the president a moron, back in July. Who hasn’t?  

New York finished with the US dollar flat against EUR, AUD and Kiwi while a tad firmer against the rest.

Thursday, FX markets were steady in Asia and Europe. The Swiss National Bank chairman Thomas Jordan complained about the value of the franc. Oil traders were watching for developments arising from Saudi Arabia King Salman’s visit to Russia. 

In New York, a round of positive economic data, the prospect of fiscal stimulus and hawkish comments from FOMC officials gave the US dollar a pre-NFP bid. Sterling broke key support at 1.3150 and dropped to 1.3108. USDCAD soared, spurred on by weak Canadian data and broad US dollar strength. Oil prices rallied 2.8% from Wednesday’s low when rumours spread that Russia and Saudi Arabia agreed to extend production cuts. It was another record close for Wall Street.

Friday, the US dollar ticked higher ahead of the nonfarm payrolls report.  The headline was ugly but it was dismissed to the impact of inclement weather in September.

Michael O'Neill is an FX consultant, currency strategist and author of the Trade of the Day at Follow Mike or post your comment below to engage with Saxo Bank's social trading platform.

06 October
John Shaw John  Shaw
Another great article. Have a great holiday Mike. Thanks for being a BIG part of this USDCAD forum.
06 October
Thanks for the update, and one little thing for the weekend
06 October
North Korea 'ready to test new high range missile capable of hitting US west coast'...
06 October
fxtime fxtime
Sadly North Korea is an ever-present threat that we all need to be wary off. Likewise the wild orange man. With orange blob denouncing Rex Tillersons comments of dialogue with North Korea via the Swedish embassy....trumps tweet basically saying 'don't waste your breath Tillerson on this' could only ever lead to another missile test. Trump/Kim are just immature kids with lethal toys unfortunately. It is a new world paradigm :-(
06 October
Michael O'Neill Michael O'Neill
Well said fxtime. Until a NK missile actually hits some city. It's all noise.
06 October
Michael O'Neill Michael O'Neill
Trump and Kim deserve each other
06 October
Andrew Perkins Andrew Perkins
Nice work guys


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