Higher Treasury Yields Lift Dollar Against Basket of Currencies

Volatility in the Forex markets returned on Friday after a somewhat quiet week. Throughout the week, the volatility was concentrated on a few currencies, but on Friday it was widely distributed in all the major currencies, especially the U.S. Dollar.

The primary market moving event last week was Friday’s U.S. Non-Farm Payrolls report. According to the government, the U.S. economy added 209,000 jobs in July and the unemployment rate was 4.3 percent. Traders were looking for the report to show 183,000 jobs were added to the economy last month. The unemployment rate came in as expected.

Average Hourly Earnings came in as forecast at 0.3%. Last month’s report showed a 0.2% rise. The closely watched wage number showed average hourly earnings rose 2.5 percent. The average work week also was unchanged at 34.5 hours.

U.S. Dollar Index

The better-than-expected NFP report was closely watched by investors who are looking for clues about the Federal Reserve’s plans for future monetary policy changes. After the release of the report, market expectations for a December rate hike rose to approximately 50 percent, according to the CME Group’s FedWatch tool. Prior to the report, the percentage sat at 47 percent.

The news helped drive up U.S. Treasury yields which gave the U.S. Dollar a boost against all major currencies. The benchmark 10-year yield climbed to trade at 2.264 percent, while the short-term two-year yield rose to 1.355 percent.

September U.S. Dollar Index futures settled the week at 93.416, up 0.302 or 0.32%.

Australian Dollar

The Australian Dollar had a rough week. The currency began the week under pressure due to an aggressive sell signal issued by Goldman Sachs on July 27. The selling pressure strengthened following the release of the Reserve Bank of Australia’s interest rate decision and interest rate statement on August 1. Finally, the Aussie was hit with additional selling pressure following the release of the U.S. NFP report on Friday.

The AUD/USD settled at .7929, down 0.0056 or -0.70%.

The RBA slightly downgraded its growth forecasts for the Australian economy while predicting a bounce back over the next few years as inflation returns to normal levels. It also added that the recent surge in the Australian Dollar will stymie the pace of recovery.

“Further exchange rate appreciation would tend to generate a slower pick-up in economic activity and inflation,” the RBA added.

RBA governor Philip Lowe also warned that the rising Australian Dollar had become a threat to growth, inflation and employment.

New Zealand Dollar

The New Zealand Dollar closed lower last week in response to weaker-than-expected employment data and the stronger-than-expected U.S. jobs report.

The NZD/USD settled the week at .7412, down 0.0099 or -1.31%.

Official government figures showed the unemployment rate edged down to 4.8 percent in the three months to June, from 4.9 percent in the previous quarter. However, the Employment Change was down 0.2 percent, below the 0.7% estimate. The last quarter showed a 1.1% gain.

The New Zealand Dollar fell against the U.S. Dollar as investors reduced the odds of a sooner-than-expected Reserve Bank of New Zealand interest rate hike.

Japanese Yen

Rising U.S. Treasury yields, a stronger U.S. Dollar and increased demand for higher risk assets helped strengthen the Dollar/Yen last week.

The USD/JPY ended the week at 110.664, up 0.005 or +0.00%.