25 October 2016
The US dollar is gaining against other major currencies, shaking off disapointing economic numbers. Photo: Xinhua
The US dollar is gaining against other major currencies, shaking off disapointing economic numbers. Photo: Xinhua

This is what’s driving the US dollar despite dismal job data

US non-farm payrolls came in below expectations last week, but that did not stop the US dollar from rising, hitting the highest level against other major currencies.

The US economy created just 160,000 jobs in April, the lowest since September, and the odds of a US rate hike in June fell to 4 percent.

Meanwhile, the New Zealand dollar slipped to a six-week low of 0.6733 due to sinking commodity prices.

The market is closely watching a report by the Reserve Bank of New Zealand due out Wednesday.

The New Zealand unit has gone through two cycles against the US dollar since April and it’s very likely to fall further to 0.656 after tumbling below 0.6808 on April 27.

The euro quickly ran out of steam after a sharp rally against the greenback last week.

It continues to face downside pressure, with support at around 1.133.

If the euro reverses its recent uptrend, it might slip below the 50-day moving average of 1.124 to 1.114.

The Japanese yen eased after a government official said the central bank might intervene to cool the surging currency.

However, investors are skeptical about whether the remarks would have a sustainable impact on the market.

The market is watching whether the US dollar will fall below the trough of 105.18 yen, a level set on Oct. 15, 2014.

The greenback swiftly rebounded after touching that level back then.

Now it looks like it might test the 50-day moving average of 110.7, at which it has been trading since late April.

On Monday, the pound sterling tumbled to a two-week low after the latest poll showed that the June Brexit referendum could be a close contest.

The sterling saw resistance at 1.457 and 1.47 on the upside, with support at the 25-day moving average at 1.436.

Investors could consider selling sterling at 1.452 and cut their losses at 1.46.

The Australian dollar dropped to 0.73 against the US dollar on Tuesday, the lowest in two months, mainly due to plunging oil and metal prices.

China’s economic slowdown has stoked concerns about demand for commodity currencies.

The Reserve Bank of Australia cut interest rates for the first time in a year last week.

Interbank rate futures show that interest rates would be further cut to a record 1.5 percent.

The aussie has already broken the uptrend since January and it looks set to weaken further in the short term.

It may ease further to the 250-day moving average of 0.733, or even to 0.721. The key support level is around 0.7.

The Bank of Canada should be ready to cut interest rates again if growth falters, according to a report released by the IMF Monday.

The US dollar broke the 25-day moving average on Wednesday. 

London gold prices fell to US$1,259 per ounce, the lowest since April 28, after a strong US dollar dampened gold demand.

Disappointing non-farm payroll data in the US failed to boost gold prices.

The yellow metal has solid support at US$1,254. Investors should watch closely if it falls below that level.

The resistance level is around US$1,270 to US$1,282.

This article appeared in the Hong Kong Economic Journal on May 11.

Translation by Julie Zhu

[Chinese version 中文版]

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Sales director, Emperor Capital Group Limited; HKEJ columnist

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