Risk-on flows and a debt limit deal hold the DXY back from rising
Non-farm payrolls are due tomorrow, and although it is not as market-moving as it used to be, it is still an important indicator for monetary policy and risk sentiment. As a result of today's light economic calendar, the US dollar and equities found key levels to pause at, in anticipation of tomorrow's event.
Market Wrap
The US dollar failed to break higher today proving the $94.50 is still acting as significant resistance as we head towards the non-farm payroll data tomorrow. Fed chair Powell stated during the last FOMC meeting that he didn’t need to see a decent NFP report for him to press for a reduction in the asset purchases. Since then, we have had a recomposition of Fed members after they were deemed to be inappropriately trading around positions that benefitted from Fed policy. With 2 Hawks leaving the monetary committee there is room for 2 members to be more Dovish, which could tip the balance on whether the Fed is able to tighten this November. If we get a bad jobs data report with poor wage data, the market may front-run the more probable Dovish stance and the US dollar could depreciate.
At the London close US stocks had extended their gains, adding 1.5% after Senate Majority Leader Chuck Schumer announced lawmakers had reached an agreement to extend the debt ceiling through to 3rd December, by effectively kicking the can down the road. Democratic and Republican lawmakers came to an agreement after a standoff threatened to cause the US government to default on its debt. The Treasury secretary Janet Yellen had warned Congress to find a solution to the debt ceiling issue by October 18. Whether the deal is ratified is still to be decided but it looks like it may get the extension needed to avoid the imminent default.
US initial jobless claims fell significantly this week to 326,000, coming in under expectations of around 348,000 according to the US Department of Labour’s latest data. The number has dropped by 38,000 from last week's revised 364,000 level. This is a better outcome and comes on the back of a decent ADP report yesterday.
Compared with the previous week's revised rate, insured unemployment decreased 0.1% points to 2% for the week ending September 25. Insured unemployment fell by 97,000 to 2,714,000, the lowest level since March 14, 2020. And compared to the previous week's revised number, the four-week moving average fell 34,500 from 2,765,000 to 2,765,000, which is the lowest level since March 2021.
According to a Challenger, Gray & Christmas Inc. report, the number of job cuts in the USA dropped 85% annually to 17,895 in September. Health Care/Products announced the most layoffs, followed by Industrial Goods Manufacturers. Closed stores, units, and plants were cited as the leading cause of layoffs. There have also been numerous layoffs as employees refuse to get vaccinated. The report states, “Health Care is facing an enormous talent shortage, as burned-out medical and support staff walks away from stressed facilities and wages that may feel inadequate for the amount of work. Other systems are facing walk-outs or firings of unvaccinated staff, further broadening the worker shortage.”
In September of 2021, the Ivey PMI in Canada rose from 66 to 70.4, continuing a trend that shows the Canadian business environment is improving. The increase is mainly being attributed to price increases. A strong energy sector has also helped the Canadian dollar rise against the US dollar but we’re coming into significant daily support levels.
The ActivTrades sentiment indicator shows that an extreme 85% of retail traders are bullish on the USDCAD, so there is a high probability that the swing low from September 2020 gets swept for their stops