Dollar Tumbles as NFP Disappoints and Rate Cut Probabilities Rise

The US dollar is down across the board against major pairs. The May employment report shocked with a lower than expected number of new jobs. The US added 75,000 positions, short of the 180,000 that was forecasted.

The U.S. Federal Reserve has been dropping hints that an easing monetary action might be needed and that it is ready to act. An interest rate cut has been rising in probability as Fed member remarks and mixed data has been pouring in putting downward pressure on the greenback.

Wednesday’s ADP private payrolls data was a preview of how challenging it was for job seekers in May with a 27,000 gain on estimates close to 200,000.

The Trump Administration will not impose tariffs on Mexican imports after an agreement on immigration and agricultural products was reached. This closes for the time being the secondary trade front as US-China remain far apart ahead of a possible meeting between the two leaders as part of the G20 in Japan.

• GOLD – Gold Hits 14 Month High as Dollar Drops on Potential Rate Cut
• OIL – Russia and Saudi Arabia Hint at OPEC+ Deal Extension
• FX EUR – Euro Rises After US Jobs Report Shows Employment is Losing Momentum
• FX CAD – Canadian Dollar Higher After US and Canadian Jobs Report

 

GOLD – Gold Hits 14 Month High as Dollar Drops on Potential Rate Cut

Gold rose 0.22 percent on Friday on its way to a 2.64 percent gain in that past five trading days. The yellow metal took advantage of the NFP miss that showed the US employment component is running out of momentum which could force the central bank into its first rate cut since abandoning its monetary easing policy.

Gold benefited from the Trump administration’s decision to engage in two open trade fronts at the same time. US-China negotiations stalled, and the market is not expecting anything new before the G20 meeting in Japan at the end of the month. The US reaching an agreement with Mexico reduced the positive trend of the metal, but gold remains bid as an interest rate cut remains on the table awaiting US inflation and retail sales data due this week.

The yellow metal has risen as investors are searching for a safe haven as the dollar is offering little refuge as market uncertainty has been triggered by the US. Further appreciating gold is the fact that disappointing economic data is making a stronger case for an interest rate cut coming sooner rather than later form the Fed.

A soft dollar would continue to validate higher gold prices if trade war anxiety remains.

OIL – Russia and Saudi Arabia Hint at OPEC+ Deal Extension

Oil prices jumped on a soft dollar and news that a Saudi Arabia and Russia pledge to extend the OPEC+ production cut agreement. The group’s attempt to soak up the excess supply in the market in effort to add stability has for the most part worked. Outside factors such as the rise of US production and trade war concerns putting pressure on global growth have been the major obstacles.

Brent and WTI rose close to 3 percent on Friday and will finish the trading week with gains despite trade war anxiety. The World Bank announced a downgrade of global growth as trade disputes are trickling down. Slowdowns in major economies are evident and if protectionism prevails there will be a slower pace of growth around the globe.

The upside for the OPEC+ is limited as reducing supply is only one part of the equation and with stable prices the appeal of increasing production in the US, Brazil and Canada will be higher as well as the continued negative effect on energy prices that trade disputes can bring.

The month of June is crucial for crude prices as the OPEC+ meets at the end of June with the G20 in Japan a couple of days after. An extension of the production cut, and more details on how the US-China are hoping to repair their trade relationship could make a huge difference for crude prices. Vice versa not reaching an extension on the OPEC+ agreement and if the US and China continue to spar on trade will only bring more downward pressure to the black stuff.

FX EUR – Euro Rises After US Jobs Report Shows Employment is Losing Momentum

The EUR/USD rose 0.56 percent on Friday and 1.48 percent in the last five trading days after the greenback was on the back foot since the start of the week. Ironically this week the European Central Bank (ECB) issued a dovish statement, but in comparison to market expectations it was not as dovish giving the edge to the euro.

The single currency is lower against the US dollar on Monday as the greenback is regaining its footing against safe havens after a successful agreement with Mexico ended before the tariffs deadline.

The miss by the US jobs report could force the hand of the Fed into making an interest rate cut. A summer cut could be on the table, unless US inflation and retail sales can turn the tide set in motion by the weak May jobs report.

FX CAD – Canadian Dollar Higher After US and Canadian Jobs Report

The Canadian dollar rose on Friday as employment reports in both countries told different stories. The Canadian jobs data impressed by beating expectations with a 27,700 job gain. The forecasts were lower after a monster April gain of 106,500 and the loonie ended up higher against the greenback as the U.S. non-farm payrolls (NFP) disappointed to the downside. The negative effects of a prolonged trade war with China are starting to appear in the jobs sector. Equities remain on a winning streak as the US and Mexico appear to be near an agreement, but the market is sensitive to escalations on the trade front.

Monetary policy divergence is driving part of the gain of the Canadian currency. The Fed was forced to pump the brakes hard in January on monetary policy after four rate hikes in 2018. Now the Fed’s dot-plot is pointing to no rate hikes, and rising probabilities of a rate cut as the US economy is not immune to the negative effects of a trade war.

Commodities jumped on dollar softness and other factors. Gold is enjoying a boost from investor appetite for the metal as a safe haven, while oil prices were supported by Russia and Saudi Arabia signalling their willingness to extend the OPEC+ deal. Russia had been non-committal and still hold most of the cards with Saudi Arabia willing to make some concessions, but until an agreement is reached and maybe announced in the meeting between the OPEC and other major producers in June, oil will remain sensitive to trade headlines and increases to US production.

 

 

This contents of this email are for general information purposes only and do not take into account your personal circumstances. This is not investment advice or an inducement to trade. The information shared is for illustrative purposes only and may not reflect current prices or offers from OANDA. Clients are solely responsible for determining whether trading or a particular transaction is suitable. We recommend you seek independent financial advice and ensure you fully understand the risks involved before trading. Leveraged trading is high risk and not suitable for all. Losses can exceed investments.

In accordance with the General Data Protection Regulations (GDPR) your email address is only being used by us to send you market commentary and your information will not be passed on unless I have your consent or am required to do so by law. If you don’t want to receive these updates any more, either unsubscribe reply to this message stating so and your details will be removed. Alternatively, you can unsubscribe using the link below.

Opinions are the authors; not necessarily that of OANDA Global Corporation or any of its affiliates, subsidiaries, officers or directors.