US Dollar: Jobs strength lifts hike odds – ING

ING’s James Knightley points out that better-than-anticipated US August jobs data, with 162,000 new positions and revisions upward, has raised the odds of a September Federal Reserve rate hike. He notes that unemployment remains steady at 4.1%, wage growth is modest, and job growth is concentrated in certain sectors. Knightley emphasizes that upcoming US inflation data will be vital for the Fed’s final decision.

The US added 162,000 jobs in August, surpassing expectations, with an additional 55,000 positions added after accounting for revisions to the previous two months. A robust US August jobs report has made a September Fed rate increase appear more probable, pushing the market to price 16 basis points of a 25 basis point hike, up from 12.5 basis points the previous day.

Fed Governor Waller’s relatively cautious remarks, suggesting a soft inflation print could lead to a stable policy, contributed to this shift. With Fed Chair Kevin Warsh referring to the US economy as being at full employment, expectations for a September rate hike have risen, but the ultimate decision will depend on next Friday’s inflation report.

The CPI report, with a predicted 0.4% increase in headline prices and a 0.2% rise in core prices (excluding food and energy), may not be sufficient to prevent Warsh from coaxing the rest of the FOMC into approving a hike. As the US Dollar stabilizes following a heavy loss the previous day due to softer bond yields, traders remain watchful for the US Nonfarm Payrolls report.

Meanwhile, AUD/USD remains stable near 0.7200, close to its highest level since mid-May, awaiting more guidance from the US jobs data before making further bets. Recent reductions in US bond yields have depressed the US Dollar near its lowest level in over a week, benefiting the Australian Dollar amid the Reserve Bank of Australia’s more hawkish stance.

Gold (XAU/USD) dropped sharply on Friday, ending a two-day rally after the US Nonfarm Payrolls report exceeded expectations. The metal briefly reached $4,500 on Thursday, gaining nearly 2%, but has since lost most of that gain. The Japanese Yen (JPY) spiked upward after temporarily falling below the psychologically significant 160.00 mark against the US Dollar (USD) earlier in the week, driven by a more hawkish assessment of Bank of Japan rate hike prospects.

Oil prices appear to have stabilized compared to earlier this year, but US diesel crack spreads surged above $100 per barrel for the first time, hitting an intraday high of just over $102.00.