04 December 2020

Will November’s NFP Accelerate US Dollar Downturn?

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News shaping
the markets today

     

What’s happening: The US is scheduled to report the all-important NFP (nonfarm payrolls) numbers for November at 8:30am ET (13:30 GMT) today.

What happened: Safe havens including the US dollar have remained under pressure this week with investors cheering positive covid-19 vaccine news from Pfizer, Moderna, and AstraZeneca.

November’s jobs data will provide markets a new opportunity to assess progress made by the US economy, with the country continuing to witness record spikes in coronavirus cases.

Why it matters: While Wall Street stocks recorded their best November performance since 1928, covid-19 cases in the country rose by more than 100,000 per day for most of November, with new infections exceeding 200,000 on November 27. The daily death count is also approaching the highest level with record hospitalisations. The situation has forced various regions to reimpose fresh restrictions in the country to contain the spread of the virus.

Against this backdrop, experts have lowered their growth forecasts for the US for the current quarter. Should the latest Labor Department report indicate higher job losses, the Federal Reserve will be under immense pressure to act with more stimulus. New stimulus measures will exert further downward pressure on the greenback versus its major rivals.

The US dollar has already plunged against other major currencies and is trading at two-and-a-half year lows due to an improvement in investor risk appetite and speculations of the Fed announcing massive easing measures.

On the other hand, a healthy rise in the NFP headline figure will defy expectations of a sharp slowdown in the US economy and may result in policymakers taking their foot off the stimulus accelerator at least till the end of December, providing some support to the US dollar.

What are the estimates: The US economy is expected to have created 481,000 jobs in November, versus 600,000+ job additions in the previous two months. The country’s unemployment rate is projected to decline, albeit by a marginal 0.1 point, to 6.8% in November.

The US has witnessed a significant decline in its unemployment rate from the pandemic high of 14.7% in April. Investors hope to see labour markets return to their pre-pandemic levels soon.

The Markets Today

     

The Canadian dollar will be in focus today ahead of the major nonfarm payrolls data from the country.

Context: The Canadian dollar closed almost flat versus the US dollar on Thursday, with the loonie remaining at near two-year high levels.

Details: The US dollar has tumbled to over a two-year low versus a basket of major rivals as optimism over covid-19 vaccines impacted investor risk appetite.

Lawmakers in the US have not been able to reach a deal on fresh stimulus to provide some relief to the economy amid the covid-19 crisis. Policymakers are said to be in discussions over another covid-19 relief bill.

On the other hand, the Canadian dollar has been supported by rising oil prices, as the country is a major oil exporter. Oil producers, including Saudi Arabia and Russia, have agreed to extend their record output cuts announced earlier. The OPEC+ (Organization of the Petroleum Exporting Countries and its allies) announced plans to lower oil output by 7.2 million bpd (barrels per day) starting January, compared to the current cuts of 7.7 million bpd. The move helped crude oil record gains in this morning.

The Canadian dollar traded almost unchanged at 1.2917 versus the greenback yesterday. The CAD/USD had earlier surged to 1.2903, its strongest level since October 2018.

What to watch: Markets await a basket of economic releases from Canada, including the jobs report. The Canadian economy is expected to add 20,000 jobs in November, versus 83,600 job additions in October. Analysts project the country’s unemployment rate to remain unchanged at 8.9% in October.

Canada’s trade deficit is likely to shrink to CA$3 billion in October, from CA$3.25 billion in September. The Bank of Canada, which has lowered its benchmark interest rate to 0.25%, is scheduled to announce its policy decision next week.

Covid-19 remains a major concern for the markets, as total cases exceeded 65.1 million worldwide.

Other Markets: US indices closed mostly higher on Thursday, with the Dow Jones index and S&P 500 up by 0.29% and 0.23%, respectively, while the Nasdaq 100 traded down 0.06%.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Germany’s factory orders and construction PMI, France's government budget value and construction PMI, Eurozone’s construction PMI, Italy’s construction PMI and retail sales, UK’s new car registrations and construction PMI, Russia’s annual inflation rate, Mexico’s consumer confidence, auto exports and car output, Brazil’s car production and new vehicle registrations as well as the US factory orders and Baker Hughes crude oil rigs.

 

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