- Fed may still make a move in September
- Even if Fed holds, USD not likely to get hit
- Fresh long position in USDCAD
QUESTIONS - Hope everyone enjoyed the long weekend. So Friday was an interesting day. The US employment report was indeed soft, but as I had warned in my analysis from last week, there were many signs that it would disappoint, not the least of which being a trend showing the September report (August data) consistently disappointing since 2011. So as we take it all in, should this really derail all of the hawkish Fed speak that we have been hearing over the past couple of weeks. I'm not so sure. And even if it does push the Fed off a 2016 hike, should it matter to the Buck? I don't know.
ANSWER ONE - First things first. Did the Friday employment report crush September rate hike prospects? The answer is no. Heading into the data the market was pricing a 34% chance of a September hike and post data the market was pricing the odds at just a smidgeon lower, at 32%. So no big change there. I would say the biggest knock to September rate hike odds from the data was the softer hourly earnings. After all, the NFP print was still solid and we also got an upward revision to the previous print. But I think if US retail sales and CPI due ahead of this month's decision, come in above forecast, the market will need to take a September hike more seriously.
ANSWER TWO - But to the second question I asked in the opening paragraph, i.e. even if the Fed doesn't hike in 2016, will it really make a difference to the US Dollar, I'm not so sure it will. So why does that make any sense? Well, I think if the Fed holds off, we still have a major threat of risk liquidation in the 4th quarter of this year that ultimately invites safe haven flow and in turn is supportive of the US Dollar. So while a Fed rate hike will definitely bolster the Buck, I think if the Fed holds off, it won't really hurt the Buck all that much. When the SPX500 breaks below 2147, it will help this theory and also help my portfolio. :)
STRATEGY - As far as other trades go, I am still short NZDUSD and looking for it to keeping failing above 0.7300. I am long AUDNZD and looking for another big bounce out from current levels. And on the light holiday Monday, I bought back into USDCAD after already booking a nice profit here several days back. I continue to see USDCAD in the process of carving a major base that should open an eventual move towards 1.3500-1.4000 in the weeks ahead.