A surprisingly strong US jobs report helped push bond yields and the US dollar higher. US non-farm payrolls rose +467k (est. +125k) and revisions for the prior two months totalled +709k (Dec was revised to +510k from +199k). Unemployment ticked up to 4.0% (est. unchanged at 3.9%) due to the participation rate rising to 62.2% (est. unchanged at 61.9%), while underemployment fell to 7.1% (prior 7.3%). Average hourly earnings rose +0.7%m/m (est. +0.5%m/m) and 5.7%y/y (est. 5.2%y/y) , although there was a pullback in average weekly hours to 34.5 from 34.7. In sharp contrast to the ADP report which showed the services sector affected by omicron, there was a rise in leisure and hospitality of +150k (that sector had fallen -154k in the ADP report). Equities also closed on a positive note, the S&P500 up 0.5%.
The US dollar index closed up 0.1% on the day. EUR again outperformed, in the wake of the previous day’s hawkish shift by the ECB, ranging between 1.1412 and 1.1434. USD/JPY rose from 114.50 to 115.43. AUD fell from 0.7150 to 0.7052. NZD fell from 0.6684 to 0.6590. AUD/NZD ranged between 1.0680 and 1.0713.
US 2yr treasury yields jumped from 1.20% to 1.32%, while the 10yr yield rose from 1.81% to 1.93% following the jobs data. Markets continue to fully price the first Fed funds rate hike to be in March 2022. Commodities, Brent crude oil futures rose 2.4% to $93 – highest since 2014, copper rose 0.5%, and gold rose 0.2%.
Overnight Currency Range
AUD/USD 0.7052 0.7151
EUR/USD 1.1411 1.1483
GBP/USD 1.3505 1.36115
USD/JPY 114.77 115.43
NZD/USD 0.6590 0.6683
USD/CAD 1.2663 1.2778
USD/CNH 6.3490 6.3690
AUD/JPY 81.26 82.21
AUD/NZD 1.0684 1.0717
The AUD/USD snaps four days of gains losing on a better-than-expected US jobs report. A risk off-market mood keeps investors moving towards safe-haven assets, like the USD and the JPY. In the meantime, the US Dollar Index, a gauge of the greenback’s value versus a basket of six peers, advances 0.24%, sitting at 95.59, underpinned by surging US T-bond yield, led by the 2-year up ten basis points, at 1.2998%.
US Nonfarm Payrolls surprise to the upside - In the meantime, the US Bureau of Labor Statistics (BLS) revealed the Nonfarm Payrolls reports for January, which added 467K employments, larger than the 150K estimated by analysts. During the week, White House economic advisers and Philadelphia’s Fed President Harker down talked about January’s employment report, which was expected worse than estimates, per the impact of the Covid-19 Omicron strain. Digging deeper, the Unemployment Rate increased to 4.0%, a tenth higher but, the highlight was Average Hourly Earnings, which rose to 5.7% vs. 5.2% foreseen, which puts the Fed under pressure to hike rates more than the 25-bps priced in for the March meeting.
On the Australian dollar side, the Reserve Bank of Australia (RBA) Statement of Monetary Policy emphasized that the board is “prepared to be patient” and will monitor factors that could affect the Australian inflation outlook. The central bank reiterated that ending the QE program does not suggest a rate hike in the future.
The AUD/USD is downward biased, per location of the daily moving averages (DMAs), which reside above the spot price. Furthermore, the AUD/USD failure at the 50-DMA opened the door for further losses, sending the pair tumbling under 0.7100. The AUD/USD first support would be 0.7100. A breach of the latter would expose January 28 daily low at 0.6967, followed by a downslope support trendline around 0.6930-45.
Event Risk Data Today
Aust: Although ANZ job ads eased in late 2021, they remain in strong territory up 33% for the year. The Q4 reopening boom should see strong gains in real retail sales (f/c: 7.7%).
NZ: Waitangi Day national holiday, markets closed.
China: January’s Caixin services PMI are expected to reveal a stunting of services growth due to omicron restrictions (market f/c: 50.5). Authorities meanwhile seem comfortable with the Renminbi’s value, with foreign reserves anticipated to remain stable in January (market f/c: $3200bn).
Sing: The January Nikkei PMI is expected to highlight a slowing of growth due to omicron.
Indonesia: Q4 GDP should confirm that production and consumption are back to pre-pandemic levels (market f/c: 4.8%).
Eur/Ger: February’s Sentix investor confidence is expected to reflect upbeat sentiment despite omicron disruptions throughout Europe (market f/c: 15.2). Germany’s industrial production is anticipated to bounce back in December, but volatility remains as supply issues are worked through (market f/c: 0.5%).