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Collinson FX: Oct 4, 2018 - Bull run on USD

by Collinson FX 4 Oct 2018 04:09 PDT 4 October 2018
Condor - Hamilton Island Race Week - Day 4 © Richard Gladwell

Collinson FX: Oct 4, 2018 - Bull run on USD

US economic data continued to surprise on the upside, with the ISM Manufacturing number reaching record highs, while the ADP Jobs number was much better than expected. The ADP report is a fore-runner to the important Non-Farm Payrolls out tomorrow night, which confirmed strong private sector jobs growth, in line with labour market statistics. The strong economic data sent equities and bond yields surging, showing the positive functioning of a bull market, in complete contrast to the Obama led economy. Any rise in interest rates previously triggered a sell-off in equities and the bond yields were triggered by poor economic data! This US market is firing on all 8 cylinders. Strong data drives interest rates and equities higher. The 10 year Bond Yield has hit 3.14, which the highest since 2011, in line with Fed target territory.

The strong interest rates are driving a bull run on the US Dollar. The EUR slipped to 1.1500, while the Yen traded 114.40, also enhanced by recent trade achievements. Commodity currencies have been hit hard by the rising reserve, with the AUD falling to just above 0.7100, while the NZD may test 0.6500. These currency moves reflect the stronger Dollar and also the vulnerability of the trade exposed nations to continued China/US trade wars. The NZD was not assisted by a contraction in commodity prices, while Australian Building consents fell 9.4%, which only support the weak housing sector narrative.

Trade remains the key global narrative, although the Non-Farm Payroll number out in the US Friday, may determine currencies to close out for the week.

Collinson FX: Oct 2, 2018 - Last minute NAFTA deal

Markets surged overnight after a last minute deal over NAFTA was completed right on the 30th September deadline. Canada has agreed to the deal that the US and Mexico had previously settled. There has been agreement over Canadian dairy tariffs and Automobiles. The new agreement will be called United States Mexico Canada Agreement (USMCA Agreement). Trade has been the major risk to international markets and this is a major step forward. India and Japan are also negotiation bi-lateral trade agreements, so China remains the only major hold out. The Canadian Dollar recovered, along with the Mexican Peso, despite the resurgent Dollar.

European markets also gained ground with the risk-on news. The turmoil surrounding ‘Brexit’ continues with no agreement in sight. The Conservative party conference has thrown up more controversy over the structure of ‘Brexit’. The GBP retreated back to 1.3040, while the EUR slipped below 1.1600. Manufacturing data from Europe was flat, while the US data was steady, as the Dollar shows support from US monetary policy.

The AUD held above 0.7200, while the NZD struggled to hold above 0.6600, despite the resurgent reserve. Trade exposed currencies remain vulnerable to the US/Chinese lack of agreement, but is seems only a matter of time before the Chinese come to the party.

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