U.S Nonfarm Payroll In Focus – Can U.S Dollar Extend The Rally?

Global financial markets witnessed an extreme volatility on Friday, after Fed Chair Janet Yellen’s speech to central bank officials at Jackson Hole Economic Symposium. The U.S dollar initially plunged sharply against all of its peers but bounced back even more strongly later following the speculation that Fed could raise rate twice in 2016. Yes, it was not Yellen’s words that supported the greenback, but the comments from Fed Vice Chair Fischer that actually fueled the U.S dollar rally.

In an interview with CNBC, which was conducted after Yellen’s speech earlier Friday, Fed’s top deputy opened the door for both the possibility of a rate hike in September and the chance for two rate increases by the end of this year. Although the U.S. economy has been strengthening, with strong jobs data in the last three months and higher inflation rate, any of Fed decision would also be based on other data that may come in, Fisher said.

Comments from two top Fed officials mingled with other hawkish statements from other policymakers lately. In an unprecedented meeting on Thursday, between nine regional Fed bank presidents and activists from the group called “Fed Up” which is opposed to raising interest rates too early, the San Francisco Fed President John Williams and New York Fed President William Dudley expressed hawkish views, saying that leaving rates too low for too long could stoke inflation and that would force the Fed to raise rates aggressively if it started too late.

Nonetheless, Fed Fund futures are currently pricing in only a 44.4% chance of a December rate hike, and a 33% odds of a September’s action, which showed a chronic doubt at the back of investors’ mind about a U.S rate hike while the other part of the world is making use of every easing method to support the economy.

The next Friday’s nonfarm payrolls data will be in the spotlight. August job report from the U.S. Labor Department is forecast to show a growth of 186,000 job added, following an exceptional increase of 255,000 in July and 287,000 in June. The unemployment rate is forecast to dip 0.1% to 4.8%, while average hourly earnings are expected to rise 0.2% after gaining 0.3% a month earlier. If next Friday’s nonfarm payrolls report is strong, the odds for a September hike will rise significantly.

Among the losers that traded lower against the U.S dollar last Friday, only Sterling closed the week higher. The British Pound has extended its gains for a second consecutive week as data released in the last two weeks have shown limited impact of the Brexit vote on the U.K economy. While Brexit may have hurt the housing market, U.K consumption has been supported by a post-Brexit softening pound. According to the British Bankers’ Association, the kingdom’s consumer credit rose 6.4% in July, the strongest pace since December 2006, as shoppers, especially tourists hit the stores while borrowers took advantage of low interest-rate loans.

The Markit will release readings on U.K manufacturing sector activity for August on Thursday, and a report on the construction sector on Friday. The manufacturing PMI is forecast to inch up from a month earlier but will remain in a contraction, while construction activity is also expected to stay below 50 but would improve slightly from July to 46.6.

On the commodity market, oil was flat on Friday and suffered a decline for the week. On the ICE Futures Exchange in London, Brent oil for October delivery settled at $49.92 a barrel by close of trade, marking the first weekly loss in a month with 1.88% retreated. On the New York Mercantile Exchange, crude oil for delivery in October snapped three-week win streak after Friday’s session, ending at $47.64 a barrel.

Besides a strengthening U.S dollar that weighted on crude prices, comments from Saudi Arabia’s Energy Minister Khalid al-Falih that he did not believe the freeze production deal can bring about any significant intervention to the oil market, also sent oil prices lower as investors were in doubt on whether a potential output freeze agreement would be reached late next month.

For the week ahead, oil traders will be focusing on U.S. oil supplies data on Tuesday by the American Petroleum Institute, data over stockpile by the U.S. Energy Information Administration on Wednesday, and U.S. oil rig count by Baker Hughes on Friday for fresh supply-and-demand balance signals.

Gold finished the whole week in the red after flipping between gains and losses on Friday. Under considerable pressure from the greenback, gold lost nearly 1.6% percent from the intra-day high at $1342.09. The precious metal was trading flat around $1320.00 per ounce troy late U.S session after failing to break lower the key support at 1318.00.

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