It’s been a very quiet start of the week in FX land with most of the majors tracing out very narrow ranges. The greenback was slightly better bid after getting hammered on Friday after the release of the NFPs.
Although the Non Farm Payroll report was better that expected with the headline reading coming in at 242K versus 195K eyed the wage growth component was disappointing with hourly wage data actually declining by -0.1% vs. 0.2% forecast. As we noted on Friday the market is now far more concerned with income growth rather than job generation as that is the factor that will influence Fed policy the most. Without any growth in wages inflation data will remain subdued and will keep the Fed on the sidelines for the foreseeable future which is why the greenback sold off on Friday despite seemingly decent NFP data.
Today the flows are a bit reversed as the commodity dollars and euro and cable are seeing a bit of profit taking. The eco calendar is extremely quiet with only ANZ job adverts in Australia and CNY reserve data out of Asia and Sentix sentiment out of Europe on the docket. The ANZ job adverts missed printing at -1.2% versus 1.0% the month prior suggesting that labor conditions Down Under continue to deteriorate. We believe that that is an under appreciated risk by the market and that the recent rally in Aussie could unwind if the unemployment begins to rise.
On the other hand the FX reserve data out China came in a bit better at 3.2T versus 3.19T eyed with reserves declining only 30 Billion in February. For the time being Chinese officials appear to have stemmed the outflow of capital and stabilized the exchange rate of the yuan, but the longer term trends still remain negative and will have to see if demand starts to pick up in Q2 of this year.
In North America today the eco calendar is barren and FX flows will likely be driven by equity and oil markets. With equities a bit lower pre-market risk aversion trades have already pushed USD/JPY below the 113.50 level and if stock start to slide at the open 113.00 figure will likely be tested as the day proceeds.