U.S. Dollar Supported by Fed Minutes, Strong Jobs Data

The U.S. Dollar Index futures contract posted a two-sided trade last week but still managed to close higher for the period. The index started the week strong before hitting its high for the week with the release of the minutes from the Federal Reserve’s June meeting. After a two day set-back, the index clawed back to positive after the release of the stronger-than-expected U.S. Non-Farm Payrolls report on Friday.

The September U.S. Dollar Index settled at 95.792, up 0.371 or +0.39%.

The dollar’s gains were distributed across all major currencies. The Greenback was up 1.37% versus the Japanese Yen, 1.13% versus the Australian Dollar, 1.15% versus the British Pound, 0.67% versus the New Zealand and Canadian Dollars and 0.21% versus the Euro.

The theme of rising interest rates from the previous week carried over to last week, but the hawkishness was fueled primarily by the U.S. Federal Reserve.

Fed Minutes

The minutes from the Fed’s June meeting showed policymakers were increasing split on the outlook for inflation and how it might affect the future pace of interest rate hikes.

Despite the mixed thoughts about inflation, Fed policymakers raised interest rates at the June meeting. The details of the Fed meeting also showed several officials wanted to announce the trimming of the $4.5 trillion balance sheet by the end of August but others wanted to wait until later in the year.

In the minutes, a few policymakers also said inflation weakness made them less comfortable with the current implied path of rate hikes.

Finally, several Fed officials felt the reduction in the balance sheet and associated policy tightening “was one basis for believing that…the target range for the Federal funds rate would follow a less steep path than it otherwise would.” Some others, however, said the shedding of bonds should not figure heavily in deciding monetary policy.

The minutes were less-hawkish than expected, but not enough to derail the Fed’s plan to raise interest rates at least one more time in 2017 and as many as three times in 2018. The next rate-setting committee meeting is next scheduled for July 25-26, however, Fed funds data indicates the next rate hike is likely to occur in December.

U.S. Non-Farm Payrolls Report

U.S. Non-farm payrolls jumped 222,000 in June, exceeding the forecast of 179,000. The unemployment rate rose from 4.3% to 4.4%. However, wage growth was muted, with average hourly earnings up 2.5 percent on an annualized basis.

The report indicates the economy is healthy and if the Fed is right, wages will eventually rise to expectations.

AUD/USD

The Australian Dollar finished lower last week, pressured by comments from the Reserve Bank of Australia (RBA) and the stronger U.S. Dollar. Gains were limited somewhat, however, by stronger than expected Trade Balance data.

The AUD/USD settled at .7600, down 0.0087 or -1.13%.

The RBA held interest rates steady as was widely expected, but the central bank did say it expected Australia’s economy to gradually recover. Australian Retail Sales came in better than expected as well as the Trade Balance. Trader reaction to the trade balance report was a little muted because investors felt the increase was fueled by unusual events.

NZD/USD

There were no major reports from New Zealand last week with the currency primarily driven by the movement in the U.S. Dollar. Kiwi traders also reacted to the RBA statement because the Reserve Bank of New Zealand is likely to issue a similar statement in the near future.

The NZD/USD settled at .7280, down 0.0049 or -0.675.

USD/JPY

There were no major reports out of Japan last week. However, the Dollar/Yen was supported by rising U.S. Treasury yields. With the onset of a rising interest rate environment, the direction of the Dollar/Yen is likely to be determined by the interest rate differential of U.S. Treasury Bonds and Japanese Government Bonds.

The USD/JPY finished the week at 113.897, up 1.537 or 1.37%.