A Stronger Dollar
The better than expected US employment report for October reinforced two key themes that should gain traction into next year: (i) US cyclical leadership; and (ii) general dollar bloc strength. Indeed, the 171k rise in nonfarm payrolls easily beat the 125k consensus, with upward revisions to September (to 148k from 114k) and August (to 192k from 181k), not to mention the solid 184k increase in private payrolls, enhancing the overall effect. While the unemployment rate ticked up to 7.9% as expected, the point to stress is that the household survey was broadly stronger, with the labour force expanding by 578k – suggesting that the jobless rate rose for ‘good’ reasons. The unchanged workweek and average hourly earnings prints were the only notable soft spots in the report, but there was certainly enough good news to embolden the USD bulls, even if the implications for the upcoming US election were still unclear. CAD benefited by association, as the positive spillover from the US jobs report offset any disappointment from its Canadian counterpart, which revealed a belowconsensus 1.8k rise in employment for October (full-time up 7.3k; part-time down 5.5k) alongside an unchanged unemployment rate of 7.4%. The pullback in USDJPY after its initial post-payrolls spike above 80.60 was not entirely surprising given the long positioning in the short-term leveraged community, though the downside still looks limited. What really stood out was not the USDJPY move, but rather the broad-based USD strength against other majors such as EUR and GBP. Even AUDUSD retreated, clearly constrained by the proximity of the RBA meeting. Our Australian economics team expects a 25bp ‘insurance’ cash rate cut to 3.00% to avoid falling behind the curve, though this is a close call given the recent string of generally firmer global data and the seemingly high Q3 CPI. Note that 7 of the 27 respondents in the latest Bloomberg poll still expect no change, so RBA action should weigh further on AUD.
Click here to read the full report: UBS Morning Adviser Asia
UBS Investment Bank