Weak Payrolls Pin USD Down
USD was on the back foot after a weak payrolls report on Friday increased hopes of a new QE announcement in the FOMC meeting later this week. Non-farm payrolls rose by 96k in August, falling considerably below the consensus call for a modest 130k rise. Jobs growth has averaged 139k per month YTD, compared with an average gain of 153k in 2011. The unemployment rate fell to 8.1% (consensus: 8.3%) but this is due to lower participation rate, and is hardly the “sustainable and substantial improvement” that could discourage the Fed from announcing more easing on September 13. Our economists now forecast new easing at the FOMC meeting that could take the form of a longer-term commitment to hold the funds rate at the current levels as well as a new round of UST or MBS purchases. EURUSD continued its rally on Friday breaking the 1.28 level during New York hours. Our technical analysts note that the directional risk is to the upside with scope for a move to 1.2824 and then to 1.2935. EURCHF rallied 50 pips following a SNB report which showed that the central bank added only CHF9.8 bn of foreign currency reserves in August. Though the causal effect of the backward looking report is doubtful and EURCHF retreated later, there is scope for further rally in the near term as EUR stays resilient. Elsewhere, Canada added 34.3k jobs in August against the 10.0k consensus, but the gains are entirely from part-time employment with the full-time jobs falling 12.5k, the biggest drop in the year. CAD lost across the board except against USD, despite comments from BoC Governor Carney noting Canada as a “rare safe haven” for global investors and rejecting claims that a high CAD is causing a “Dutch disease” problem. Ahead today, Q2 GDP data is due in Japan. Our economists expect the annualized growth rate to be revised down to 0.8% from 1.4% (consensus:1.0%). A downward growth revision, potentially followed by further easing from the Fed and the ECB would encourage the BoJ to provide further stimulus when it convenes its monetary policy meeting on September 18-19. We expect USDJPY to trade in ranges and stick to our 1m target of 78.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank