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FOREIGN EXCHANGE TRADING: Dollar Soars on Jobs Data

Foreign Exchange Trading: Monday witnessed the dollar’s strengthening against the yen, thanks to stronger-than-expected jobs and factory data. However, participants expect the cautious Federal Reserve stance and holiday-thinned Asian trading to cap gains.

According to data last Friday, the US created 304,000 jobs last month. This is the highest in 11 months, as well as higher than analysts predicted.

Participants in foreign exchange trading saw the dollar rise a tad higher than the yen at 109.53. This followed its largest gain in nearly a month, which took place during Friday’s US trading session.

“The non-farm payroll was a strong number and is supporting the dollar. A dovish Fed had hit the dollar/yen but rising stocks and solid US data have led to this bounce back,” said Nick Twidale, who is chief operating officer at Rakuten Securities.

The solid jobs reports dispelled some fears over slowing global economy. Foreign exchange trading participants slashed their expectations that the Fed would cut interest rates this year.

The benchmark 10-year US Treasury stepped at 2.69 percent, which was a bounce from a four-week low of 2.619 percent last week. Participants expect the increasing US yields to back the greenback in the near term.

Finance Brokerage - foreign exchange trading: Man and woman in suit walking in front of the Reserve Bank of Australia
Foreign exchange trading participants expect the US Federal Reserve to pause interest rate hikes.

Further, the broader markets hovered in tight ranges in early Asian trading. The euro traded sideways at $1.1455.

China’s markets are closed for the Lunar New Year. Other Asian markets are also closed for some days in the week. As a result, broader market activity is lower.

Foreign Exchange Trading: Aussie Weakens, Monetary Policy in Focus

The Australian dollar 0.2 percent lower at $0.7234. The kiwi was a tad higher at $0.6901.

The Aussie suffered after the release of weaker-than-expected building approvals data.

Forex market participants are now awaiting the Reserve Bank of Australia’s monetary policy meeting on Tuesday. Traders and analysts expect the bank to keep the cash rate the same. Analysts believe that the RBA will keep the accommodative monetary policy because of the slumping economic data.

The RBA has previously reiterated that the next move would probably be up. However, the futures market points to a 50-50 chance of a 1.5 percent cash rate by end of the year.

“Market expectations have emerged for a rate cut as opposed to the RBA’s view that the next move is an increase. The RBA will also need to temper its optimistic economic outlook,” said DBS currency strategist Philip Wee in a note.

The dollar index, which measures the greenback’s strength against six major peers, was firm at 95.58.

Meanwhile, in the face of the strong labor market, participants still expect the US Fed to keep rates steady. Blurred global growth outlook, particularly in China, contributed to the uncertainties. With the euro, growth has also been weaker than the market expected. France and Germany, which are Europe’s economic powerhouses, are also slowing down.

The greenback enjoyed a stellar performance last year, thanks to the increasing US interest rates. On the flip side, most analysts do not expect the same for this year.

Sterling was sideways at $1.3083 early in Asia. Traders expect the currency to be volatile as Brexit doubts loom. The Bank of England will meet later this week as the market expects it to keep rates steady.

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