29 Mar 2016
Fed re-pricing threatens commodity bloc currencies – BNPP
Research Team at BNP Paribas, suggests that the main data release of the week will be the March non-farm payrolls report on Friday where we expect the Easter effect to have a negative impact on the headline figure.
Key Quotes
“We see the pace of hiring slowing to 180k from 242k in February, a flat unemployment rate at 4.9% and a trend-consistent 0.2% m/m gain in average hourly earnings. Both the manufacturing and services ISM reports will be released after the jobs data this month, so the only advance hint on the numbers will come from the ADP survey on Wednesday.
Fed funds futures now imply a 38% probability of a 25bp June hike and the key question going forward is whether market sentiment can sustain a further repricing of Fed tightening. The past week sent some warning signals on that front, with equity markets weakening, and we are still not convinced that the broader financial conditions will be supportive enough for a resumption of the tightening cycle in the coming months.
This implies that we are not inclined to chase the USD higher against the current account surplus currencies such as the EUR. At the same time we think the dollar has room to gain against the risk-sensitive commodity exporter currencies such as CAD and AUD. Fed Chair Yellen speaks in New York on Tuesday and her comments could be important in setting the tone for market expectations for the April and June FOMC meetings.”
Key Quotes
“We see the pace of hiring slowing to 180k from 242k in February, a flat unemployment rate at 4.9% and a trend-consistent 0.2% m/m gain in average hourly earnings. Both the manufacturing and services ISM reports will be released after the jobs data this month, so the only advance hint on the numbers will come from the ADP survey on Wednesday.
Fed funds futures now imply a 38% probability of a 25bp June hike and the key question going forward is whether market sentiment can sustain a further repricing of Fed tightening. The past week sent some warning signals on that front, with equity markets weakening, and we are still not convinced that the broader financial conditions will be supportive enough for a resumption of the tightening cycle in the coming months.
This implies that we are not inclined to chase the USD higher against the current account surplus currencies such as the EUR. At the same time we think the dollar has room to gain against the risk-sensitive commodity exporter currencies such as CAD and AUD. Fed Chair Yellen speaks in New York on Tuesday and her comments could be important in setting the tone for market expectations for the April and June FOMC meetings.”