U.S Nonfarm and the BoC Rate Statement to Drive the Dollar and Loonie

Earlier in the Day:

Macroeconomic data through the Asian session this morning was on the lighter side and limited to Australia’s 3^rd quarter GDP figures. Quarter-on-quarter, the economy grew by 0.6%, falling short of a forecasted 0.7%, following the 2^nd quarter’s upwardly revised 0.9% growth. Year-on-year, things were a little more palatable, with the economy growing by 2.8%, compared with 1.8%, whilst also falling short of a forecasted 3%.

The Aussie Dollar slipped from $0.75846 to $0.75760 upon release of the numbers, which were not quite aligned with the RBA’s more optimistic outlook on the Australian economy in Tuesday’s Rate Statement. Household spending pegged back growth, rising by just 0.1%. Such levels have not been seen since the Global Financial Crisis. With interest rates at record lows, the effects of rising household debt on household savings and spending rates was telling in the 3^rd quarter. Inflation may be dragging its heels, but until wage growth picks up and begins to outpace the rate at which household debt is rising, there’s going to be little the RBA can do.

With little else for the markets to consider and following the declines in the U.S equity markets on Tuesday, it was risk off through the session. The Yen was up 0.39% to ¥112.16 against the Dollar at the time of writing, with the Aussie Dollar down 0.38% at $0.7578.

The Kiwi Dollar managed to buck the trend, up 0.39% at $0.6903 at the time of writing, supported by rising New Zealand dairy prices. The GlobalDairy Trade Price Index increased by 0.4% according to figures released on Tuesday evening, bringing an end to four consecutive declines.

Looking at the equity markets, there was a sea of red. Tech stocks continued to bleed, with the Asian markets taking cues from the U.S, with falling commodity prices adding pressure on mining stocks through the session. The Hang Seng down 1.44%, while the Nikkei and the ASX200 closed out the day down 1.97% 0.44% respectively. Hopes of a recovery in the China markets reversed, with the CSI300 down 0.61%, though both the Hang Seng and CSI300 had recovered some of their earlier losses. There’s been plenty of talk on valuations across the Asian markets, but while regulatory risk continues to play its hand on appetite for China and Hong Kong equities, valuations will continue to come second best for now.

The Day Ahead:

It’s a relatively quiet day on the data front for the Eurozone. Economic data is limited to Germany’s October factory orders, which are forecasted to be EUR negative, though the impact on the EUR may be relatively muted should the Asian session risk aversion filter through to the European session. The futures markets for the major indexes are not painting a rosy picture for the day ahead, with gold finding some much needed support, Gold Spot up 0.15% to $1,267.46 at the time of writing, with the EUR up 0.05% at $1.1832.

For the Pound, with no material economic data out of the UK for the markets to consider, the only support is likely to come from any further Dollar weakness going into the European session. Concerns over Brexit and the British government’s ability to navigate Britain out of the EU has taken a turn for the worse this week and the Pound has paid the price. Pressure is now on the British Prime Minister to get the ball rolling ahead of the 2-day European Council meeting that kicks off on 14^th December.

Theresa May is looking to be in more of a precarious position today than she was yesterday. A failure to get talks going on trade will likely reignite the political fires that the British PM attempted to put out in recent weeks.

At the time of writing, the Pound was down 0.14% at $1.3424, with direction hinged on Brexit chatter.

Across the Pond, things get a little more interesting this afternoon. From the U.S, the markets will get a sense on where the labour market is heading, with the November ADP nonfarm employment change figures scheduled for release. Forecasts are for 185K to be added, with anything short of 180K likely to add more pressure on the Dollar. October’s numbers will also need to be watched closely, with any downward revisions also a negative. Other stats out of the U.S include 2^nd estimate 3^rd quarter nonfarm productivity and unit labour costs figures. Unit labour costs are forecasted to be revised downwards, which will likely have a greater impact on the Dollar than any upward revision to productivity numbers this afternoon. We will expect the ADP numbers to be the key driver for the Dollar, though the markets will need to remain vigilant, with any chatter from Capitol Hill capable of shifting sentiment through the U.S Session.

For the Loonie, the Bank of Canada’s interest rate decision will be in focus, with the rate statement likely to be sliced and diced. Few are expecting a rate hike this afternoon, but any hints of a near-term move could provide a further boost to the Loonie. We’ve seen the Canadian Dollar recover well against the U.S Dollar since the last interest rate decision, which led to the Loonie hitting a November low $1.2897 at the end of November. A pickup in crude oil prices have certainly contributed through recent weeks.

At the time of writing the Dollar – CAD is up 0.04% at $1.2696, with the Dollar Spot Index down 0.12% at 93.269, recovering from an intraday low 93.171. While the BoC’s statement will be key for the Canadian Dollar. Any dovish sentiment in the statement could see the Loonie slide to see the USD/CAD to move back to $1.28 levels. Recent stats out of Canada have suggested that the BoC may look to take its time on lifting rates further. The U.S Dollar moves ahead of the U.S session will be dependent up on risk sentiment, with the Dollar at the mercy of the EUR.