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USD rises for 5th consecutive day ahead of non-farm payrolls.

By Nick Parsons

The week isn’t yet over but so far, the US Dollar has gone up for 4½ days out of 4½. As we saw last Friday, it would be premature to celebrate too soon and a lot can happen in the final session of the week, especially one which brings the latest US labour market report. Ahead of this, the week ending December 2nd (which isn’t covered by today’s data) brought the third straight decline in claims and was the 144th consecutive week that claims remained below the 300,000 threshold. That is the longest such stretch since 1970, when the labour market was of course much smaller. According to a Reuters survey, non-farm payrolls probably increased by 200,000 in November after surging 261,000 in October. Job growth in October was boosted by the return to work of thousands of employees, mostly in low-wage industries like hospitality and retail, who had been temporarily dislocated by Hurricanes Harvey and Irma. The unemployment rate is expected to remain steady at 4.1%. The US Dollar index has extended its gains to be up at 93.67; the highest level since November 21st and the S+P 500 index needs to add only another 15 points to be at a fresh all-time high. Assuming payrolls and earnings numbers close to consensus estimates and in the absence of any external shock, the USD should continue to find support.

The CAD fell again on Thursday as local media reflected further on the more dovish comments in the BoC Statement. It drew no support from an oil price which rallied around 70 cents on the day and this morning has just jumped $57.45. Nor did it benefit from the latest data from the construction sector. A 3.5% m/m increase in October building permits far exceeded consensus forecasts for a gain of 1.5% whilst September was upwardly revised to 4.9% from a previously reported 3.8% rise. Non-residential building permits jumped 5.5%, led by intentions for commercial buildings, as Quebec and Ontario planned more warehouses and office buildings. Both provinces have seen their unemployment rates fall as their economies have picked up. Permits for industrial buildings also rose 14.2 percent on construction intentions for factories and plants in Alberta, which is recovering from the oil price shock two years ago. As for the purchasing managers survey, this shrank only very modestly from 63.8 to 63.0 in November whilst the gauge of employment rose to an adjusted 53.9 from 52.0, boding well for further job gains. As with the New Zealand Dollar, the Canadian Dollar did what it did on Thursday despite the data, not because of it. The CAD opens in North America this morning at USD1.2850 and GBP/CAD1.7307 ahead of data this afternoon on housing starts and capacity utilization.

The euro continues to grind lower without any particular catalyst and without getting any support from further strength in incoming economic data. This morning brought the final estimate of third quarter Eurozone GDP which fleshes out the provisional numbers in a little more detail. The very encouraging feature of Q2 had been a 2.2% jump in investment spending. Q3 has added to this with a further 1.1% gain. For those of our readers who remember the accounting identity that GDP=C+I+G+(X-M)+S, we see that household consumption and investment both contributed around 0.2% to the 0.6% q/q total, with net trade and government both contributing +0.05% and inventories 0.1%. Within the Eurozone, the fastest quarterly growth rates were registered in Malta (+1.8%) Slovenia (+1.0%) and Cyprus (+0.9%) whilst the slowest were Belgium, Estonia and Greece (+0.3%). Broadening the analysis to the EU 28, Romania grew a hugely impressive 2.6% q/q whilst at the other end of the table, Denmark was the only economy which contracted in Q3. At 4pm European time today there is a Draghi Press Conference hosted by the ECB in Frankfurt but in his capacity as Chair of the Group of Governors and Heads of Supervision (GHOS) of the Bank for International Settlements. In the meantime, traders are reluctant either to sell dips or to buy into the rallies so we’re left in a familiar USD1.1750-1.1930 range unless and until some genuine ‘news’ hits the screens.

After a very eventful, indeed dramatic week of political negotiations between London, Dublin and Brussels, UK Prmime Minister Theresa May met with European Commission President Juncker earlier this morning to sign off a 15-page “progress report” that will allow EU negotiators to recommend opening a second phase of talks on post-Brexit relations. According to the formal Statement, “The European Commission has today recommended to the European Council (Article 50) to conclude that sufficient progress has been made in the first phase of the Article 50 negotiations with the United Kingdom. It is now for the European Council (Article 50) on 15 December 2017 to decide if sufficient progress has been made, allowing the negotiations to proceed to their second phase…. In line with the Guidelines of 29 April 2017, and once the Member States agree with the Commission’s assessment, the Commission stands ready to begin work immediately on any possible transitional arrangements and to start exploratory discussions on the future relationship between the European Union and the United Kingdom.” In plain English, Phase Two of the Brexit negotiations can now get underway. The good news for the GBP is that a collapse of the talks has been averted and hopes for a 2-year transitional deal post-2019 are very much alive. Whether this is good enough to sustain the GBP at current levels remains to be seen and may well depend on the reaction of the Government’s own MP’s over the weekend. The trading day begins in North America with the GBP at USD1.3460 with GBP/CAD at 1.7290.

The Aussie Dollar is having a bad week, with plenty of reasons to justify the currency’s weakness. Poor GDP figures then a disappointing set of trade numbers have pulled the rug from under the AUD at a time when we’re already seeing signs of softness in consumer confidence, wages and the residential property market. That’s a pretty long list of negative factors even before we factor in an inquiry into the country’s major banks. On Thursday, AUD/USD fell from 0.7566 in Sydney to end the Northern Hemisphere day in New York at a 5-month low of 0.7507. Overnight it couldn’t get much support either from better than expected home loans data (a -0.6% m/m drop beat consensus forecasts of a -2.5% fall) or from much better China trade figures which are often seen as a bellwether for the global economy in general and Australia in particular. China’s exports in November rose 12.3% y/y, the fastest pace in eight months, led by strong sales of electronics and high-tech goods, while commodity purchases helped imports grow 17.7%. AUD/USD opens in North America around USD0.7510 but the old technical support point of 0.7540 now becomes an area of upside resistance. AUD/CAD, meantime opens at 0.9650.

The Kiwi Dollar had a poor day on Thursday even though – as in Canada – the economic data this week have been pretty good. The job vacancy numbers Tuesday were sound and Wednesday we learned that building activity in the Wellington region grew strongly over the past year. Yesterday, Stats NZ reported that seasonally adjusted total wholesale trade sales value rose 1.1 percent in the September 2017 quarter, after rising 1.6 percent in the June 2017 quarter. This was the sixth consecutive quarterly rise, driven mainly driven by fruit exports and grocery wholesaling. With a half decent dairy auction too, after 4 consecutive declines, it would have been reasonable to expect the NZD to outperform the AUD but that’s not how it turned out. NZD/USD ended the New York session at its low of the day at USD0.6825. Overnight, we have seen the last of the so-called ‘partial data’ which feed in to the GDP data as Stats NZ released the survey of manufacturing for the September quarter. This shows the volume of manufacturing sales rose 0.3% in Q3, after a 1.0% rise in the June 2017 quarter. Of the 13 manufacturing industries, seven fell and six rose in the latest quarter. NZD/USD opens in North America this morning around 0.6840 with NZD/CAD at 0.8790.