Foreign exchange trading reminder on October 11: non-agricultural data is not good, the dollar fell and the yen hit a two-and-a-half-year low

On Friday (October 8), the U.S. dollar index fell 0.09% to 94.13. The US non-agricultural employment data fell short of expectations for the second consecutive month, but traders believe that this may not affect the Fed's cut-down schedule. The 10-year U.S. Treasury yield rose to 1.60%; the 10-year breakeven inflation rate in the United States rose to 2.69%, the highest level since May, and then gave up the gains.

According to the employment report released by the US Department of Labor on Friday, non-agricultural jobs increased by 194,000 in September. Analysts said that the fact that the rate of increase was smaller may reduce expectations that economic growth will accelerate rapidly after a significant slowdown in the third quarter, but it is unlikely to prevent the Fed from starting the process of reducing the size of monthly bond purchases as early as November.

Mazen Issa, senior foreign exchange strategist at TD Securities, pointed out that the overall data is not as good as expected, but the potential details are not so terrible. Therefore, in the end, it is in line with the Fed's announcement next month to reduce quantitative easing expectations.

Kathy Lien, managing director of BK Asset Management, said that I think the Federal Reserve made it very clear that they don’t need a super strong employment report to reduce the size of asset purchases in November. Therefore, although you see a slight correction in the U.S. dollar, I think the Fed is still on this track. Disappointing employment data may cause the dollar to fall, but any such weakness may be fleeting. Issa believes that the market will need more convincing evidence, just a weak employment report, can not allow the market to digest the Fed will postpone action until the end of 2022 and after 2023.

A foreign exchange strategist at Bank of America Global Research said in a report that in the week after the non-farm payrolls report was released, the U.S. dollar tends to reverse most of the rise or fall since the day the report was released.

Deutsche Bank Alan Ruskin said that expectations of the Fed’s November reduction should not be shaken by the lower-than-expected non-agricultural employment, and the benefits of yields to the dollar will not be weakened.

The September report is the last employment report released before the Fed's policy meeting on November 2-3.

The euro rose 0.15% to 1.1569 against the dollar, partly supported by short covering before the weekend; Valentin Marinov, head of foreign exchange research at Crédit Agricole G-10, said that the euro “looks undervalued” against the dollar.

The yen hit its lowest intraday level since April 2019, and the dollar rose 0.56% to 112.25 yen against the yen.

A weaker U.S. dollar helped the pound stabilize. The pound closed 0.51% higher this week, its best weekly performance in five weeks. Interest rate hike expectations overwhelmed concerns about the fuel crisis and labor shortages.

With the surge in oil prices, the U.S. dollar fell 0.79% to 1.2452 against the Canadian dollar, breaking through the 200-day and 100-day moving averages, and hitting the lowest level since July 30. The country’s employment report previously showed that the 3 million jobs lost during the new crown epidemic were exhausted. recover. The yield on the 2-year Canadian Treasury bond soared after the release of the Canadian Employment Report, and the difference from the yield on the 2-year U.S. Treasury bond widened to 37 basis points, the highest since January 2015. Monex's Simon Harvey said the data confirms the expectation that the Bank of Canada will decide to reduce the price at its October meeting.

The Australian dollar fell 0.04% to 0.7309 against the US dollar; the New Zealand dollar rose 0.20 to 0.6939 against the US dollar.

Summary of Institutional Views

Issa, senior foreign exchange strategist at TD Securities: The Fed is expected to still reduce QE next month

The non-agricultural sector in September fell short of expectations, but the underlying details were not so terrible. Therefore, it was ultimately in line with the Fed’s announcement of a reduction in quantitative easing next month. Disappointing employment data may cause the dollar to fall, but any such weakness may be fleeting. The market will need more convincing evidence. It is just a weak employment report, which cannot be digested by the market. The Fed will postpone action until the end of 2022 and beyond 2023.

National Bank of Canada Wealth Management: In view of rising commodity prices, the United States and Canada will fall to 1.20 in 2022

Although basically facing the Canadian economy, the Canadian dollar weakened in the third quarter. Looking ahead, the wealth management economist of the National Bank of Canada predicts that the U.S. dollar against the Canadian dollar will fall to 1.20 next year. Given that energy prices will not fall sharply in the next few months, we believe that the United States and Canada should fall. Given the recent performance of the Canadian labor market, as well as the positive outlook for commodity prices and nominal GDP, we continue to expect the Bank of Canada to reduce the scale of quantitative easing again in October. Given that we have raised our forecasts for oil and natural gas prices, we now expect the United States and Canada to fall to 1.20 in 2022.