Top Story

NFP Recap: Headline beats but wage growth weak – dollar regains footing

At first glance, Friday’s non-farm payrolls data for June far surpassed expectations at 222,000 jobs added against prior expectations of around 175,000. Additionally, May’s disappointing 138,000 figure was made slightly less disappointing by Friday’s upward revision to 152,000. Overall, however, the jobs report was mixed, as average hourly earnings came in lower than expected at +0.2% against a +0.3% forecast, and May’s +0.2% was revised down to +0.1%. These weaker wage growth numbers should exacerbate concerns that inflation may continue to lag. In addition, another less-positive aspect of the report was the unemployment rate, which ticked up to 4.4% against both the prior forecast and last month’s reading of 4.3%.

Fed Implications

The implications of this report are mixed. The fact that the headline NFP number surpassed expectations by a considerable margin provides confidence that the US employment landscape remains strong and average job gains over the past several months are indeed gaining ground. This supports further Fed tightening. Low inflation, however, still poses a challenge for the Fed. Lackluster wage growth as reported on Friday, intensifies that challenge and questions the Fed’s recently expressed confidence that inflation would pick up. From the market’s perspective, bets on another Fed rate hike this year actually decreased modestly in the immediate aftermath of the jobs release. At this point, monetary policy uncertainty continues to prevail.

Market Reaction

Like the NFP data release itself, the immediate market reaction was also mixed. The first knee-jerk reaction to the headline beat was a spike up for the US dollar. Then a whipsaw reversal occurred as the less positive aspects of the data were digested. Finally, the dollar regained its footing and surged once again. As is typically the case, gold took the opposite route. The precious metal first spiked down, then reversed higher, and finally continued to fall as the dollar rose. US equity markets took the headline beat and ran with it, rising in pre-market and continuing to surge after the open to pare losses from Thursday. USD/JPY reached up to hit key resistance around the 114.00 level as the dollar rose while yen demand faded.

Week Ahead

Looking forward to the week ahead, key currencies to watch will be both the noted USD/JPY pair as well as USD/CAD. Next week brings the highly anticipated Bank of Canada (BoC) monetary policy report and rate statement. Due in part to recent comments from BoC officials about a potentially impending rate hike, the Canadian dollar has been on a sharp climb, pressuring USD/CAD down to new lows. Current expectations are for a 25-basis-point rate hike by the BoC next week. If this is indeed to be the case, the Canadian dollar is likely to continue its rise against the uncertainty of the Fed-driven dollar, potentially pushing the currency pair down towards its next major support target at 1.2800.

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.