Written by Steven Dooley, Head of Market Insights, and Shier Lee Lim, Lead FX and Macro Strategist
Global markets hit by slowdown fears
A big miss in the US jobs report on Friday saw markets end the week sharply lower as investors worried about the potential for a US recession.
The July labour report found 114k jobs were added – well down on the 180k forecast – while the unemployment rate jumped from 4.1% to 4.3%.
US sharemarkets were already vulnerable after an earlier sell-off last week – mainly driven by poor earnings including misses from Intel and Amazon – and Friday’s action saw the S&P 500 down 1.8% while the Nasdaq lost 2.4%.
The US dollar was hit hard by the poor data with the USD index falling 1.2% on Friday as it hit the lowest level since 14 March.
The Japanese yen and euro led gains with the USD/JPY falling 1.9% and EUR/USD up 1.2%. The GBP/USD gained 0.6%.
The USD/CNH fell a massive 1.2% as it hit the lowest level since January. The USD/SGD fell 0.7%.
However, the recession worries meant that currencies tied to global economic growth underperformed. The AUD/USD and NZD/USD only gained 0.3%. The Canadian dollar also underperformed.
Greenback mostly better in August
With the USD index at five-month lows, this week’s data is crucial. We anticipate a slight increase in ISM services to 50.5 in July – below consensus – from 48.8 in June. The month’s regional surveys yielded mixed results, but the S&P flash PMI spiked to its highest level since early 2022.
Even though the S&P flash PMI increased sharply, industries that are sectors like agriculture, and retail that are not included in the S&P PMI seem to have slowed down in July, which probably prevented the ISM services index from rising as much.
Despite a bad start to the month, August is historically a positive month for the greenback – but a bad month for risk-sentiment more generally – and this strong USD seasonality can provide a useful tactical pillar of support.
RBA in focus this week
FX markets will be driven by central bank decisions this week with policy announcements due from the Bank of Japan, and Reserve Bank of Australia and Reserve Bank of India policy meetings.
The Bank of Japan will be closely watched as investors await the release the Summary of Opinions from their July 30-31 meeting on Wednesday. These communications could provide insights into the BoJ’s stance on monetary policy, especially given recent signs of inflationary pressures in Japan.
In addition to central bank events, key economic data releases will influence currency movements this week:
The US ISM services report for July is due on Monday, offering insights into the health of the American services sector. This will be followed by the US trade balance for June on Tuesday, which could affect views on the US current account balance.
China’s trade balance for July will be released midweek, followed by its CPI data for July on Friday. These releases will be closely watched for signs of economic recovery in the world’s second-largest economy.
Canada’s Labor Force Survey for July is scheduled for Friday, which often triggers volatility in the Canadian dollar.
USD tumbles in Asia after jobs miss
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 5 – 9 August
All times AEST
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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