The most anticipated event risk this week was the March U.S. non-farm payrolls report. Nearly 1 million jobs were created, the most in seven months. Economists were looking for NFPs to rise by 647,000. Instead, it jumped 916,000. The unemployment rate dropped to 6%, which was right in with expectations. Such a blowout jobs number should have driven the US Dollar Index sharply higher, and while the greenback spiked after the initial release, its gains were modest. A large part of that had to do with Easter holidays in the U.S. and abroad. Equity markets were closed, so not many investors were around to react to the report. Average hourly earnings growth also declined, which was a complete surprise. Economists anticipated a modest 0.1% increase, but wages dropped for the first time since June. On top of that the percentage of people on long-term unemployment rose to 43.4% from 41.5%.
Even though there was some underlying weakness, the U.S. dollar’s dominance hasn’t been challenged because the labor market is recovering faster than most other nations. With more than 38% of all adults receiving at least one dose and more than one in five fully vaccinated, the near-term outlook is strong. More jobs will be added in the coming months as we head into a vibrant summer spending season. According to the Center of Disease Control, fully vaccinated people can travel with “little risk” to themselves. This reassurance will help reinvigorate the travel industry.
With many markets still closed for Easter Monday, trading should be quiet at the start of the week. The U.S. has non-manufacturing ISM, factory orders and durable goods due for release. These reports should be strong given robust job growth and acceleration in manufacturing activity. We don’t expect any major movements in Sunday Asian and European trade, but there could be some catchup on Monday for U.S. traders who were out on Good Friday. Currencies will take their cue from the market’s appetite for U.S. dollars on Monday, but as the week progresses, the Australian and Canadian dollars will take center focus.
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The Reserve Bank of Australia and Bank of Canada have monetary policy announcements on the calendar. Changes are not expected from either central bank, but with the European Central Bank and the Federal Reserve moving in opposite directions, investors will be eager to see where the RBA and BoC stand. The last time we heard from the RBA, it did not increase policy accommodation. Since then, strong labor data was offset by weaker retail sales and trade. Due to slow vaccine rollout, Canada’s economy is lagging behind the U.S., but last week the Bank of Canada ended its emergency liquidity programs as the economy’s recovery continues. If the RBA maintains its cautiousness and the BoC is slightly more optimistic, we could see a sharp sell-off in AUD/CAD.