03.02.2017 Daily Market Analysis

The US dollar (USD) posted a solid performance ahead of the release of Nonfarm payrolls (NFP) today, with the price action suggesting that investors are fully expecting a positive number.

The US Unemployment claims came in at 246K, better than the expected 251K and the previous 260K. On Wednesday, ADP Nonfarm estimates hit the highest levels since June last year, and the Federal Reserve talked up labor conditions in the US. All this points to a positive number and with no Trump headline expected today, the greenback can continue its impressive charge upwards. Aside from the NFP report, FOMC members will also be crossing the wires, while investors will also be watching out for the release of ISM Non-Manufacturing PMI.

In other currency news, the British pound (GBP) was the biggest loser yesterday as it was weighed down by weak data and an uninspiring Bank of England (BOE). Construction PMI printed 52.2, worse than the expected 53.9, but all eyes were on the BOE. The central bank delivered positive GDP forecasts, but the Inflation forecast remained unchanged. The BOE now expects the UK economy to grow by 2% this year, up from the previous forecast of 1.4%. The unemployment rate is also expected to ease to 4.5%, an improvement from the previous forecast of 5%. These were no doubt good numbers, and BOE attributed them to the impact of the weak GBP and a now clear Brexit path. Still, BOE Governor Carney remained cautious saying that although there is a clear Brexit path, ‘twists and turns’ cannot be ruled out. Investors were also concerned about inflation, which the BOE still forecasts that it will remain low for two years. There was also no mention of raising interest rates. GBP traders will today focus on the release of Services PMI data, but the Queen’s currency may be well impacted by the US NFP data set to be released later in the day.

Meanwhile, the euro (EUR) swung both ways but ended the day lower against the USD. The common currency was initially propped up by upbeat data, but could not hold its own against the strong greenback. Month on month Eurozone PPI printed 0.7%, higher than the expected 0.5% as well as the previous 0.3%. Spanish Unemployment Change came in largely as expected at 57.3K, but French 10-year rates ticked higher. Eventually, USD strength was too much for the euro. Today, there will be the release of Services PMI data across the Eurozone, but the euro will likely take its cue from the USD, with the NFP reports set to be released today.

Commodity currencies posted a mixed performance yesterday with the Australian dollar (AUD) printing the biggest gains of the day. The AUD was well supported by positive data as well as resilient gold prices. The Australian Trade Balance came in at 3.51B, significantly higher than the expected 2.00B as well as the previous 2.04B. Month on month Australian Building Approvals also printed -1.2%, better than the expected -1.7%. Crude oil prices drifted slightly lower, but the Canadian dollar (CAD) held steady, edging marginally higher. The New Zealand dollar (NZD) swung both ways but ended the day practically unchanged. There is no market-moving data expected from the commodity countries, and with the US releasing the NFP report today, it is the greenback that will provide the cue for the commodity currencies.