Trading Mid-Day Update (06/04)

#OPINIONLEADER#

During today’s Currency Call, Gim Hong highlighted that the U.S. nonfarm payroll report to be released later at 2230 (GMT+8) may indicate more jobs to be added than previous month for three reasons.

Firstly, the strong ADP employment data released yesterday is a good indication of how the nonfarm employment may turn out. Also, the number of people claiming for unemployment benefits continues to decline, indicating that more people may have already return to the workforce.

Secondly, both IHS Markit and ISM reported that in May, jobs growth in the services sector remains strong while jobs growth in the manufacturing sector declined due to supply shortages. Since the services sector contributes to more than 70% of the U.S. GDP, the effect of the jobs growth decline in the manufacturing sector is likely going to be made up by the increase of jobs growth in the services sector.

Thirdly, as the fourth round of stimulus cheque is still in negotiation, the uncertainty of whether it will even be issued may force some people to return to the workforce earlier than expected.

The Canadian jobs report will also be due for release at the same time as the U.S. jobs report. As the Ontario province of Canada is still under lockdown, job losses are expected in May.

Scott highlighted that the strong U.S. ADP employment data released yesterday led to the strengthening of the U.S. dollar index to the 90.5 level. With the series of positive U.S. news being released, we may be seeing the dollar index break above the 90.5 level. If the U.S. jobs report is positive, short-term buying opportunities can be taken up with a stop-loss level at 90.3 as the next minor resistance level is at 90.8.

Jin highlighted that the U.S. nonfarm employment data may indicate more jobs being added in May than in April but may be less than the forecasted figure. The lower than previous forecasted average hourly earnings may seem to indicated that more people are being employed, but this may also indicate that they are being paid less. Thus, this may limit the strengthening of the USD in a scenario whereby a stronger jobs report is released.

Despite the forecast of a decline in jobs in Canada, Jin felt that the better than previous forecast may bring some strength to the Canadian dollar. Trades taken that involve the Canadian dollar are suggested to be kept short-term as the Bank of Canada will be announcing their monetary policy decision next Wednesday at 2200 (GMT+8).

During the day, USD/CAD strengthened briefly.