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USD Lower as Markets Once Again Re-Price Fed Risk

Published September 6, 2016
  • The USD is broadly lower as the holiday shortened week gets underway in North America
  • The market is increasingly pricing in no change in rates from the Fed at September's meeting, as last Friday's jobs data don't seem strong enough to sway the doubters
  • Despite Non-Farm Payrolls averaging 239k new positions for the past 3 months and the unemployment rate coming in at 4.9%, the market is only pricing in a 26.4% chance of an interest rate hike in September; this seems low considering the hawkish tone delivered by Janet Yellen et al in Jackson Hole
  • As a result, we are seeing broad based weakness in the USD Index, with cumulative losses of 0.7% since last week's highs and a 1.7% drop against the Loonie since Friday
  • USDCAD is hanging around either side of the 1.2900 handle this morning with lots of risk ahead this week for CAD traders
  • Wednesday sees the BoC deliver its latest interest rate decision and, while the data of late has been poor and job creation almost non-existent, the saving grace for governor Stephen Poloz may have been Friday's Trade balance which finally showed a narrowing of the deficit due to a large upswing in non-energy exports
  • The BoC is likely is stay on hold Wednesday but there does exist the remote possibility of a rate cut given Poloz's penchant for such surprises in the past
  • On Friday, Canada will report jobs data for August and the market is looking for a healthy 18k gain and for the unemployment rate to hold at 6.9%; this would be welcome given the lacklustre jobs data over the past 12months – a mere 71K cumulative gain of which all are part time
  • Oil prices rallied over 6% on Monday as news that Russia and Saudi Arabia agreed to take action on regulating supplies hit the wires, however, most of those gains have now dissipated with WTI trading at $44.60 for a gain of 2.3% since yesterday

Charts: (1) USDCAD pulls back into the 1.2900's. (2) Probability Table of a Fed Hike at upcoming meetings. (3) Economic Calendar.