The Desperate U.S. Dollar. Can Wage Growth Help?

Earlier in the Day:

Economic data out of the Asian session this morning was limited to Australia’s November trade figures and it wasn’t good news for the Aussie Dollar.

October’s trade surplus was revised down to an A$0.302bn deficit, with the trade deficit widening to A$0.628bn in November, falling short of a forecasted A$0.550bn surplus.

Exports were flat for the month, with a slump in the export of non-monetary gold (-23%) weighing, while imports rose by 1%. The only good news will have been the 2% increase in the export of non-rural goods, driven by a 26% jump in the export of metals (excl. non-monetary gold), with the export of metal ores and minerals up 1%.

The Aussie Dollar slipped from $0.78676 to $0.78575 upon release of the figures, which are going to weigh on 4^th quarter economic growth numbers. At the time of writing the Aussie Dollar was deeper in the red, down 0.11% to $0.7855, having recovered from an intraday low $0.7843 that was hit in the wake of the data release.

In spite of the numbers, the ASX200 made strong gains through the session, gaining 0.75% at the time of writing, supported by a continued bounce in mining and metal stocks.

For the Yen, it was another session in the red, with the risk on sentiment easing appetite for the safe haven, the Yen down 0.09% to ¥112.85 against the Dollar, with the Kiwi Dollar relatively flat at $0.7159 at the time of writing.

The softer Yen saw the Nikkei hold on to Thursday’s gains, adding a further 0.62% at the time of writing, with the Hang Seng and CSI300 up 0.18% and 0.24% respectively.

Solid economic data out of the U.S, Europe and Asia this week has certainly added fuel to the equity market rally ahead of December quarter end earnings, with the continued weakness in the U.S Dollar doing no harm to the commodity rally through the first week of the year.

The Day Ahead:

Key stats out of the Eurozone this morning includes December’s preliminary inflation figures for France, Italy and the Eurozone, with the EUR likely to find some direction off the Eurozone’s figures.

Inflation has continued to lag and, while ECB President Draghi believes that inflationary pressures will begin to build, there has been little evidence to date. Core inflation will be the main area of focus, with the ECB having been clear on the need to see core inflation on the rise and not headline inflation.

The soft Dollar has led to a material pickup in the EUR, which will have an influence on inflation down the track, but for now the markets will be looking for anything that could shift the ECB from its neutral position on interest and deposit rates.

At the time of writing, the EUR was up 0.04% to $1.2073 today’s stats forecasted to be EUR positive.

For the Pound, there are no material stats scheduled for release through the European session, leaving the Pound at the mercy of the Dollar and Brexit chatter. Things have been relatively quiet on the Brexit front through the first week of the New Year, though it will start to get interesting in the coming weeks as trade talks begin.

There have been rumblings of a second EU Referendum, though the chances of such a move remain slim at the present.

At the time of writing, the Pound was up 0.08% to $1.3562, with the gains against the Dollar this week coming off the back of persistent Dollar weakness in spite of some pretty upbeat stats.

Across the Pond, it’s a big day for the U.S Dollar, with December nonfarm payrolls, wage growth, factory orders and the market’s preferred ISM non-manufacturing PMI numbers to slice and dice.

Focus will be on wage growth and if the numbers are in line with or better than forecast, the Dollar will be on the move later today, with the expected numbers likely to provide some support leading into the U.S session.

Nonfarm payroll numbers will need to be solid, with no material downward revision to November numbers, while service sector PMI numbers will provide some further guidance on what to expect for 4^th quarter growth ahead of next week’s retail sales figures.

At the time of writing, the Dollar Spot Index was down 0.01% to 91.845, recovering from an early Asian session low of 91.802, with the Dollar more than capable of making up the current week’s losses on today’s data.

For the Loonie, after a relatively quiet start to the year on the data front, this afternoon’s trade, labour market and Ivey PMI numbers will be of influence, with the Loonie having had an impressive start to the year, supported by a solid crude oil price rally.

At the time of writing, the Loonie was flat against the U.S Dollar and, with forecasts on today’s data mixed, the Ivey PMI will likely have the final say.