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FX

Strong US Wages Growth, but Limited Impact on US Rates and USD

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Strong US wages growth, but limited impact on US rates and USD

  • The US September jobs report indicated that the average hourly earnings (AHE), a proxy for wages inflation, had the strongest year-over-year wages growth since 2008 (2.9% year-over-year and 0.5% month-over-month versus consensus for 2.6% and 0.3% respectively). However, this was not enough to boost USD sentiment.

     

  • Meanwhile, movements on Friday appear to signal that the USD’s recent positive run may be running out of steam. A number of hurdles may have to be cleared before a more sustained USD rally can resume. These include:

    • A credible tax reform plan by the Trump administration. Citi analysts think markets may already be pricing about a 30% likelihood of a tax reform.

    • Concrete signs of inflationary trends picking up in US consumer price index (CPI) and core personal consumption expenditures (PCE), which would help raise the prospect of three Fed hikes in 2018 and provide a stronger boost to the USD. The stronger wage gains are yet to translate into a stronger CPI or core PCE.

    • Resolution about who will be the next Fed chair. Markets continue to focus on this and believe this may have the potential to alter the Fed’s tightening profile in 2018 and beyond.

 

 

EUR & GBP: EURUSD back above 1.1700, speculation over PM May’s future likely to continue to undermine sterling sentiment

  • The EURUSD rebounded strongly on Friday (back above 1.1700) following the continuing strength in eurozone data seen last week. A likely strong eurozone industrial production print (0.9% month-over-month versus 0.5% month-over-month consensus) may further support the EUR.

     

  • In the UK, continued speculation over Prime Minister Theresa May’s fate could set the tone for GBP – despite reports on Friday suggesting she has the full support of her cabinet.

 

 

Commodity Bloc: AUD looking vulnerable, NZD potentially ripe for a relief trade, CAD likely back in the box seat

  • Reserve Bank of Australia (RBA) board member Ian Harper is not “ruling out a rate cut” should the Australian domestic economy lose momentum. This appears to reflect the extent of the RBA board’s concerns about the domestic economy, which could weigh on the AUD. Citi analysts believe that the RBA will raise increase rates only in the fourth quarter of 2018.

     

  • New Zealand’s Electoral Commission’s declaration of the official results of the 23 September election on Saturday potentially clears the way for some sort of recovery to reflect a lowering of political risk should negotiations between NZ First and Nationals proceed smoothly.

 

  • The CAD outperformed the AUD and the NZD on Friday following a strong Canadian September jobs report with full-time employment rising a massive 112k versus part-time employment falling 102k. This sees USDCAD close the NY session at near 1.2508.

 

 

Asia EM: PBoC cuts the RRR

  • The People's Bank of China (PBoC) indicated on Sep 30th that it will cut the reserve requirement ratio (RRR) for most banks from 2018. The RRR is the amount of reserves which has to be held as cash by commercial banks. The cut is likely to see China’s bond and rate markets rally modestly following the Golden Week holidays last week, supported by the moderating economic momentum in China. This could pressure the RMB somewhat.

 

 

This is an extract from the Daily Currency Update, dated 9th October 2017. Please approach a Citigold Relationship Manager if you would like more information.

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MARKET SPECIFIC DISCLOSURES

Market Specific Disclosures

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This communication is for general information only, is not intended as a recommendation or an offer or solicitation for the purchase or sale of any products or services and should not be relied upon as financial advice. The information herein
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