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What’s happening: The US dollar retreated on Wednesday amid a decline in US Treasury yields.
What happened: The US released a mixed set of economic data on Wednesday, signalling some weakness in the economy.
The Japanese currency, meanwhile, remained steady against the greenback, after recording sharp gains in Tuesday’s session.
Why it matters: The greenback came under pressure on Wednesday after the US released a disappointing ADP jobs data ahead of the key employment report, the nonfarm payrolls (NFP) report, due to be released on Friday.
US private employers created 89,000 jobs in September, the weakest figure since January 2021 when private businesses in the country shed workers. The latest reading followed 180,000 job adds in the previous month and came in well below market estimates of 153,000.
Sentiment was further hurt by the ISM services PMI release, which fell to 53.6 in September, versus the six-month high of 54.5 in the prior month. Despite the decline, the latest reading signalled the ninth straight month of growth in service sector activity in the US.
The US dollar recovered some of its losses after data showed factory orders grew 1.2% in August, above market expectations of 0.2% growth.
The greenback remained close to its highest level since November 2022, driven by hawkish remarks from Fed members which sparked speculations of interest rates remaining high for an extended period of time.
The Japanese yen remained slightly firmer versus the US dollar, trading away from the key 150 level, on speculations of the Bank of Japan intervening in the forex market to provide support to its currency.
The JPY/USD surged to 147.30 at one point on Tuesday, its strongest level in three weeks, after declining to 150.165, its lowest since October 2022.
The US dollar index, which measures the greenback’s performance versus a basket of major peers, fell around 0.2% to 106.80 on Wednesday, but remained close to its 11-month high of 107.34 recorded in the prior session.
The EUR/USD forex pair gained around 0.4% to reach 1.0505 on Wednesday, remaining close to Tuesday’s low level of $1.0448. The GBP/USD pair also moved higher, recovering from a nearly seven-month low.
What to watch: Investors will watch the official jobs data, scheduled for release on Friday.
Markets will focus on initial jobless claims and balance of trade releases later today. Analysts expect jobless claims to increase to 210,000 in the latest week, from 204,000 in the week ending September 23. The US trade deficit is expected to narrow to $58.3 billion in August, from $65 billion in July.
Context: The CAD/USD forex pair fell to a six-month low on Wednesday amid a sharp decline in oil prices.
Details: Crude oil prices fell sharply on Wednesday, exerting pressure on commodity-linked currencies like the loonie. Oil is one of Canada’s major exports and fluctuation in prices impacts its currency.
WTI crude oil futures fell 5.6% to close at $84.22 per barrel on Wednesday, amid speculations of Russia preparing to lift its diesel ban and the latest Energy Information Administration’s (EIA) report signalling weakening demand for gasoline.
Global bond yields, which had been rising sharply, eased on Wednesday and lent some support to the loonie.
Canadian government bond yields moved lower on Wednesday, tracking the US Treasuries’ moves. The yield on Canada’s 10-year government bond eased to 4.14%.
The CAD/USD pair fell around 0.3% to 1.3746 on Wednesday, after reaching its weakest intraday level since March 24 of 1.3779. The S&P/TSX Composite Index gained 0.07% to settle at 19,034.81.
What to watch: Traders await the release of major economic reports on balance of trade and Ivey Purchasing Managers Index from Canada today. Canada, which posted a trade deficit of C$0.99 billion in July, is expected to report a gap of C$0.7 billion in August. Analysts expect the Ivey Purchasing Managers Index for Canada to decline to 49.6 in September, from 53.5 in August.
Canada’s employment data for September, due to be released on Friday, will also remain in focus.
Other Markets: US trading indices closed higher on Wednesday, with the Dow Jones index, S&P 500 and Nasdaq 100 up by 0.39%, 0.81% and 1.45%, respectively.
US Central Command said that the country plans to transfer thousands of weapons and small arms ammunition that were seized from Iran to Ukraine. Despite ongoing geopolitical tensions, the safe-haven US dollar index traded lower this morning.
Australia’s trade surplus widened to A$9.64 billion in August, versus A$7.32 billion in the prior month. The figure also came in higher than market expectations of A$8.725 billion and lent support to the AUD/USD forex pair.
Hong Kong’s S&P Global SAR PMI edged lower to 49.6 in September, from 49.8 in the previous month, which sent the HKD/USD pair lower in forex trading this morning.
US crude oil inventories declined by 2.224 million barrels in the week ending September 29, versus a 2.17 million drawdown in the prior period, which lent support to WTI crude oil prices.
South Korea’s annual inflation rate accelerated to 3.7% in September, from 3.4% in the prior month. Despite this, the KRW/USD pair rose in forex trading this morning.
Germany’s balance of trade, new passenger car registrations and construction PMI, France’s industrial output and construction PMI, Spain’s industrial production and consumer confidence, Eurozone’s construction PMI, Italy’s construction PMI, UK’s new passenger vehicle registrations and construction PMI, Turkey’s gross foreign exchange reserves, US Challenger job cuts and natural gas stocks change, Mexico’s consumer confidence indicator, as well as Argentina’s industrial production.
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