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Market Participants wait for US Non-Farm Payroll Numbers Out Tomorrow

By OFX

Yesterday the Federal Reserve upgraded its assessment of the U.S. economy but decided to skip another interest rate increase for now leaving the cash rate at 2%. However, the committee is widely expected by market participants to approve a quarter-point increase at the September meeting. The statement said the labor market has "continued to strengthen," language consistent with the June meeting. Traders in the futures market are indicating a 91.4 percent chance of a September increase and a 68.2 percent probability for another move in December.

On the US data front, today in the US sees Factory Orders (for June) and the ISM NY business conditions index. All attention will now turn to Friday’s Non-Farm Payroll Report and ISM Non-Manufacturing PMI.

From a technical perspective, the Greenback is neutral against the Pound Sterling, currently trading at 1.3050, even as the Bank of England raise interest rates to 0.75% from 0.50% at its monetary policy meeting today. The USD/JPY pair reached a two-week high of 112.14 yesterday but turned south in early European trade. Currently trading at 111.40. The EUR/USD pair traded in a tight 30 pips' range yesterday right below the 1.1700 figure. The Euro is currently weaker this morning trading at 1.1624.

The loonie has been holding up against its G10 counterparts well lately despite the drop-in oil prices and potential unilateral NAFTA deal between the US and Mexico.

Economic data for Canada is light today, market participants are drawn towards Canadian Trade Balance figures on Friday with expectations at -2.30B vs. previous of -2.77B. A slight improvement is expected from exports over imports.

Yields in Canada have been trading higher, supporting the CAD, with the 2-year trading at a multi-year high. USDCAD was little changed around the 1.3020 level. Further support is seen at 1.2987 while 1.3072 will now act as short-term resistance.

EURUSD dropped 0.3% to 1.1660 on slightly weaker than expected Manufacturing data out of Europe and broad USD strength following higher US Treasury yields across the curve, although the longer end saw a bigger increase.

European manufacturing PMIs, released yesterday morning, were mostly mixed and a non-event as far as EUR/USD traders were concerned.

There’s no European data due out today and so EUR/USD will likely take its lead from offshore events and associated global risk appetite.

The pound stuck to a narrow range vs. the US dollar yesterday, trading just above 1.31 for most of the day. UK Manufacturing PMI printed more or less in line with expectations and US data was mixed. Investors have also been reluctant to do much ahead of today’s much anticipated Bank of England monetary policy announcement.

The Bank of England was widely expected to raise interest rates from 0.5% to 0.75%, which was not fully priced in, Bank Governor Carney spoke following the announcement. Carney's comments added continued pressure on the pound, which nearly saw a break down through 1.30.

The bank also publishes its Inflation Report in which we’ll get details on forecasts for short, medium and long-term inflation. In the last report, the BoE saw inflation at 2.35% in 2-3 years, based on unchanged monetary policy. Meanwhile, there are fewer data releases due out from the US today, but traders will have half an eye on tomorrow’s Non-Farm Payrolls.

The Australian Dollar saw little change against its U.S. counterpart in domestic trade yesterday as we opened at 0.7425 and drifted lower, trading in a twenty-pip range for the day. Price action moved lower off the release of the AIG Manufacturing Index which saw a dip from 57.4 to 52. While still in expansion, it showed a slower pace for the month of June and caused the local currency to curtail and test support at US 74 cents.

Movements again overnight were minimal as the Federal Reserve kept interest rates on hold at the benchmark levels of 2.00% with the CME Fedwatch tool showing a 91% chance of an interest rate hike at the next meeting in September and a 67% chance in December.

Eventual lows were seen overnight of 0.7355 before drifting back higher as the AUD looks to test support levels at 0.74 once again today with the release of Australian June trade balance figures. Expectations are that the release will show a surplus of +$900m.

The New Zealand Dollar dipped intraday yesterday against its US counterpart following the release of second-quarter unemployment data. The jobless rate rose to 4.5% which beat expectations of 4.4%. Meanwhile, private sector wage inflation rose 0.6% in the quarter for a 2.1% annual increase which was in line with expectations. The NZD/USD moved from 0.6819 down to 0.6803 following the report and then dragged lower offshore to touch an eventual low 0.6781. Markets are expecting the RBNZ to increase rates in late November, all speculation at this stage as it is dependent still on the economy retaining momentum to push inflation higher.

Looking ahead, as tensions once again flare between the US and China with news of US Treasury's Lighthizer is to consider increasing the tariff rate on $200 billion of Chinese goods to 25 percent from 10 percent the Kiwi could come under selling pressure in a risk-off environment. There is no economic data out locally, markets will turn to the UK where the Bank of England is expected to raise interest rates.