Strong Jobs Report Helps U.S. Dollar Sustain Weekly Rally

The U.S. Dollar posted a two-sided trade last week before closing higher against a basket of currencies. The Greenback was mixed against individual currencies due to various fundamental narratives, closing higher against the Japanese Yen, but lower versus the Euro, British Pound, and the commodity-linked Australian, New Zealand and Canadian Dollars.

June U.S. Dollar Index futures finished the week at 94.169, up 0.039 or 0.04%.

Four major events drove the price action in the Forex market last week including geopolitical tensions in Italy, worries over a U.S. – versus the world trade war, a drop in U.S. Treasury yields and better-than-forecast U.S. jobs data.

Volatility in the Italian bond market first drove the Euro to a 10-month low, pushing the U.S. Dollar Index to a multi-month high. However, late in the week, political turmoil eased in Italy, fueling a rebound in the Euro, breaking its six-week losing streak. The Euro was supported by a drop in Italian bond yields after a revived coalition deal between two anti-establishment parties pulled the country back from snap elections.

President Trump also fueled a volatile response in the Forex market following his announcement Thursday of new tariffs on imported metals. Canada, Mexico and the EU all said they plan to retaliate with levies on billions of dollars of U.S. goods from orange juice and whiskey to blue jeans to Harley-Davidsons.

Treasury yields fell last week as investors continued to react to the Fed’s dovish May monetary policy minutes which indicated the central bank would allow inflation to move above its 2 percent mandate. This lowered the chances of at least three more rate hikes this year.

Yields were push down this week by fears over a euro zone crisis, but moved a little higher on Friday after the U.S. Labor Department’s May jobs report showed solid wage gains, making a rate hike in June near-certain, and increasing expectations of a fourth hike this year.

Japanese Yen

The price action in the Dollar/Yen was primarily driven by the up and down movement in Treasury yields. Rallies were also driven by flight to safety buying at the height of the political turmoil in Italy, and lower when tensions eased.

The USD/JPY settled at 109.519, up 0.134 or +0.12%.

There were no major reports out of Japan last week. However, several minor reports posted better than expected results including the SPPI, Retail Sales, Housing Starts and Capital Spending.

In other news, the BOJ’s Governor Kuroda acknowledged a slowdown in the Japanese economy. He also said the BOJ must begin to investigate the potential reasons behind Japan’s sluggish inflation and lagging wage growth.

Australian and New Zealand Dollars

The Australian and New Zealand Dollars fell early last week as the political turmoil in Italy drove investors out of higher risk assets and into safe haven investments. The Aussie and Kiwi made recoveries into last week’s close on a drop in U.S. Treasury yields as tensions in Italy eased. However, investors gave back some of the gains following the release of the stronger-than-forecast U.S. Non-Farm Payrolls report.

The AUD/USD settled at .7568, up 0.0021 or +0.28% and the NZD/USD finished the week at .6987, up 0.0071 or +1.03%.