USD mixed ahead of jobs data – Scotiabank

The US Dollar (USD) solid push higher yesterday has stalled on the face of it so far today. The major currencies are narrowly mixed against the USD, with high beta/ commodity FX gaining modestly while the core majors (JPY, EUR, CHF) edge a little lower. Positive earnings and bullish guidance from Nvidia last night supported risk appetite and are driving gains global stocks, accounting for the modest bid for the likes of the NZD, GBP and AUD, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD mixed versus majors as markets await Sep payrolls

"Limited moves in the majors suggest that markets remain somewhat cautious. The VIX is lower but remains above the 20 zone. The Sep NFP data will have to be soft to boost dwindling prospects of a December rate cut now that we know the FOMC will not get fresh data before the next policy decision on the 10th. The BLS announced yesterday that the Oct NFP data will be released with the Nov report in the middle of next month. Estimates for the Oct report suggest a large-ish (50k) drop in jobs is likely which could have boosted chances of another Fed rate cut before the end of the year."

"Without key data or other clear signs of a major downturn in the economy, prospects for a Fed rate cut next month are unclear. The street is looking for a 50k gain in Sep jobs today. Yesterday’s minutes for the Oct FOMC meeting showed the expected deep split in perspectives. “Many” policymakers already thought that a Dec cut was likely 'not appropriate', outweighing the “several” who thought further easing could be appropriate next month. This is more a debate about when, not if the Fed cuts again, however, and December might still be a finer call than swaps pricing indicates."

"The Dec contract has just 7bps priced in. If the Fed does hold next month, pressure for a more aggressive, 'catch up' move in Jan could rise if the Oct and Nov jobs reports are weak. The DXY punched through the 200-day MA (99.9) easily yesterday which looks technically constructive. But gains are showing signs of stalling on the intraday chart in the low 100 zone, where the DXY peaked in August and earlier this month. The index may need more support from yields and spreads (i.e. stronger data) to advance."