Currencies Soar As U.S., Canada Labor Data Beat – Implications For Fed Next Week

Currencies Soar As U.S., Canada Labor Data Beat – Implications For Fed Next Week

Kathy Lien  | Jun 06, 2020 02:47

Currencies and equities traded sharply higher Friday following shockingly strong U.S. and Canadian labor market numbers. Instead of losing another 7.5 million jobs in the month of May, U.S. companies added 2.5 million jobs. No one, not even any of the 78 economists surveyed by Bloomberg, were looking for job growth last month, so today’s report completely defied expectations. It reinforces the view that a recovery is under way and suggests that the U.S. government’s stimulus program effectively stabilized the economy. The CARES act provided forgivable loans if businesses rehire and that’s exactly what we saw in today’s numbers. Half of the increase was in food services and restaurants, which rushed to reopen ahead of the Memorial Day holiday. The unemployment rate dropped to 13.3% from 14.7% instead of rising to 19% like economists anticipated. The only bad news was wage growth as earnings fell 1%, marking the first decline ever for the series.

Is the labor market recovery sustainable?

Quite possibly because the first half of May marked only the beginning of state reopenings. As more states ease restrictions, hiring will resume, especially ahead of the June 30 deadline to rehire employees and qualify for loan forgiveness. USD/JPY shot higher in response, but the strong rally in stocks boosted high beta currencies, such as sterling and the Australian dollar avoid steep losses. EUR/USD pulled back after its eight-day rally, but still managed to hover near 1.1300.

This report will go a long way in ensuring a brighter outlook from the Federal Reserve next week. The Fed is widely expected to leave monetary policy unchanged and its resistance to negative interest rates will be validated by today’s report. Manufacturing and service sector activity also improved, which should lead to a brighter outlook. If next week’s rate decision is laced with optimism, we could see renewed gains for the U.S. dollar.

Canada also surprised the market with job growth last month. Instead of losing another 500,000 jobs, Canada added 289,000 jobs in the month of May and most of them were full time. The unemployment rate increased slightly to 13.7% from 13% but the participation rate saw a nice improvement, a sign that workers are returning to the workforce. The IVEY PMI index also rebounded to 39.1 from 22.8, confirming that a recovery is under way. Even though U.S. numbers were good, USD/CAD hit a three-month low after the report.

In general, the rallies in currencies are overstretched. EUR/USD finally pulled back after eight straight days of gains but the AUD/USD is up for seven days in a row and NZD/USD is up for five. The risk rally is strong but with no major economic reports scheduled for release outside of the U.S. next week, it could be time for the U.S. dollar to shine.

Kathy Lien

Related Articles

Latest comments

Add a Comment
Please wait a minute before you try to comment again.
Discussion
Write a reply...
Please wait a minute before you try to comment again.

Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.

English (USA) English (UK) English (India) English (Canada) English (Australia) English (South Africa) English (Nigeria) Deutsch Español (España) Español (México) Français Italiano Nederlands Português (Portugal) Polski Português (Brasil) Русский Türkçe ‏العربية‏ Ελληνικά Svenska Suomi עברית 日本語 한국어 简体中文 繁體中文 Bahasa Indonesia Bahasa Melayu ไทย Tiếng Việt हिंदी
Sign out
Are you sure you want to sign out?
NoYes
CancelYes
Saving Changes

+

Download the Investing.com App

Get free real time quotes, charts and alerts on stocks, indices, currencies, commodities and bonds. Get free top of the line technical analysis/predictors.

Investing.com is better on the App!

More content, faster quotes and charts, and a smoother experience is available only on the App.