USD Falters Ahead Of Jobs Report And Start Of Chinese Goods Tariffs

by: Alfonso Esparza

The US dollar is mixed against major pairs on Thursday. Reports of a zero tariff on auto imports between the EU and the US boosted the EUR as private payrolls and jobless claims disappointed in the US. The USD staged a comeback later in the session with the release of meeting minutes from the FOMC in June. The Fed hike rates unanimously during the meeting and remains hawkish on the US economy, with some concerns about trade. The market awaits the release of the U.S. nonfarm payrolls (NFP) report for a chance to validate the Fed's view of two more rate hikes this year.

  • US expected to add 195,000 jobs.
  • Canada anticipated to gain 22,300 jobs.
  • Canadian and US unemployment rates to remain unchanged.

EUR Advances, but Fed Minutes Give Lift to USD Ahead of NFP

The EUR/USD gained 0.22 percent on Thursday. The single currency is trading at 1.1681 after the US private payrolls gained only 177,000 - less than the expected 190,000 - and unemployment claims rose to 231,000 last week. Despite the miss, the data still points to a strong labor market in the US. The much-anticipated U.S. nonfarm payrolls (NFP) to be released on Friday will be closely tracked, with special emphasis given to the average wage growth.

The end of the work week will also market he beginning of the $34 billion tariffs on Chinese goods by the White House. China has already said that it won't fire the first short, but it's ready to retaliate. The U.S. Federal Reserve released the minutes from its June monetary policy meeting on Thursday with an optimistic tone to the economy. The possibility of two more rate hikes in 2018 remains high, despite the central bank also warning that trade tensions are already impacting investing in the US.

Fed members continue to be hawkish on the US economy, and the release of the minutes boosted the USD ahead of the release of the NFP report. The rate hike in June was unanimous, but if anything, inflation has been one of the subjects that has divided the Federal Open Market Committee (FOMC). A strong 0.3 percent growth in wages to match the figure from last month would go a long way in validating the view of the more hawkish members of the FOMC.

The EUR recovered some ground after the release of softer US jobs data, but also as reports pointed to a possible zero tariff between the US and Europe on auto imports. The US proposed tariffs had put pressure on the single currency and triggered risk aversion, and the rumoured compromise sparked higher risk appetite and the EUR.

Loonie Flat Awaiting Canadian and US Jobs Data

The USD/CAD is flat at 0.01 percent movement. The currency pair is trading at 1.3140 on Thursday after the loonie took advantage of higher oil prices at the beginning of the session and weaker employment data in the US. A surprise buildup in US crude inventories and the release of hawkish minutes by the Fed brought the Canadian currency near where it started to remain flat.

usdcad Canadian dollar graph, July 5, 2018

The CAD has climbed one position upwards away from being the worst performer against the USD from the majors. The growing probability of a rate hike by the Bank of Canada (BoC) next week has given the loonie a fighting chance as trade war comments continue to depreciate the currency versus the currency of its major trading partner, the US.

The Canadian data will be released by Statistics Canada at the same time as the U.S. nonfarm payrolls (NFP). Analysts are forecasting a gain of more than 22,000 jobs after the number of positions shrank by 7,500 last month. The trade balance will also be published with a forecast of 2.2 billion. The deficit had an unexpected 1.9 billion deficit after exports rose by 1.6 percent to a record in April. The Ivey Purchasing Managers Index (PMI) will be released at 10:00 am EDT to wrap up the economic calendar in North America.

Market events to watch this week:

Friday, July 6
8:30 am CAD Employment Change
8:30 am CAD Trade Balance
8:30 am CAD Unemployment Rate
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Unemployment Rate

*All times EDT

For a complete list of scheduled events in the forex market, visit the MarketPulse Economic Calendar.