The USD that had fallen by 5% against the majors over the last one month is likely to regain its upward momentum on the back of good April US jobs report. The USD declined on worries of the US economy as first quarter 2015 GDP numbers came in at just 0.2% giving rise to expectations of the Fed putting off rate hikes. However with good job numbers, the Fed is likely to stay on course on its gradual rate hike trajectory.
USD remained lower last week as the USD Index (DXY), which tracks the movement of the USD against six currencies, posted a decline of 0.44%. On yearly basis, the USD has strengthened by 19.73%.
USD started the week on a high note after the data released on last to previous Friday showed that U.S. activity in the manufacturing sector was stable in April, after slowing in the five previous months and U.S. consumer sentiment rose in April to its highest level since January. But later USD came under pressure as U.S. Bureau of Economic Analysis reported that trade deficit widened to USD 51.37 billion in March from deficit of USD 35.89 billion in February and against the expectation of deficit of USD 41.2 billion.
ADP on Wednesday reported that non-farm private employment rose by 169,000 in April, which is below the expectations of an increase of 200,000 but on Friday the U.S. Department of Labour reported that U.S. economy added 223,000 jobs in April, which was around expectations of 224,000. The report also showed that U.S. unemployment rate moved down to 2008 levels of 5.4% in April from 5.5% in March.
U.S. Department of Labour on Thursday reported that initial jobless claims for the week ended 2nd May increased by 3,000 to 265,000, from the previous week’s total of 262,000 and against the expectations of rise of 18,000 to 280,000.
U.S. jobs report will continue to give support to the USD as the monthly data released was around expectations but unemployment rate of 5.4% and weekly initial jobless claim data were better than expectations, which has eased the worries on the recovery of U.S. labour market.
Euro fluctuated throughout the week against the USD but ended flat at the level of Euro 1.1199. Euro was down during early part of the week after U.S. posted weak economic data but gained on Wednesday as U.S. trade deficit widened more than expected. Euro is likely to trend down post the US jobs data.
The INR last week touched 20-month low levels against the USD and breached the psychological level of Rs 64, which was last seen in September 2013. The decline was largely due to nervousness in the global markets, which gained momentum after US Federal Reserve chair Janet Yellen on Wednesday indicated that high equity market valuations could pose potential dangers of bubble formation. (Read our Analysis on INR at Rs 64.20 is at Twenty Months Lows – INR fall is because of the Euro and INR will regain its Strength).
Asian currencies were down broadly against the USD last week. Australian Dollar depreciated by 0.56%, Japanese Yen depreciated by 1.34%, South Korean Won depreciated by 0.61%, Philippines Peso depreciated by 1.09%, Indonesia Rupiah depreciated by 1.27%, Indian Rupee depreciated by 0.81% against USD and by 0.17% against the Euro, Thai Baht depreciated by 2.81%.
Brazilian Real broke its five week winning streak by depreciating against the USD by 2.29%. The decline came after Brazil Central Bank eased support for the currency. On Monday the Central Bank extended the maturity of 8,100 foreign exchange swap contracts worth USD 393.3 million compared to 10,600 contracts in earlier days.
Russian Ruble appreciated by 1.97% against the USD after Russia’s inflation for the month of April came in at 16.4% year on year against 16.9% in March. Ruble continued to find support from surging level of crude oil prices as U.S. reported its first inventory drawdown since January. US inventory level declined to 3.882M against the expectation of 1.5M. Brent. Crude oil in the last week declined by 1.61% from 66.46 USD/bbl to 65.39 USD/bbl after gaining by around 2% in the early week. Brent crude is up almost 30% from lows over the last few months.