The commercial war is back and the investors do not like it. The US dollar traded higher against all major currencies on Friday thanks to a stronger employment report and President Trump's threat of new rates in China and Japan. Stocks extended their decline and, unless the president retracts his threats, there are likely to be more losses, which means more risk aversion and losses for major currencies. The nonfarm payrolls report on Friday guarantees a Fed boost on September 26. Not only were more than 200,000 jobs created in August, but salaries are growing! Average hourly earnings increased 0.4% last month, the strongest growth rate in almost a year. Between record highs in US stocks last month and earnings rally, retail sales next week could also surprise on the upside. Comments from policymakers in the United States have also been aggressive with Fed presidents Mester, Rosengren and Kaplan in pursuit of the policy rate to move towards neutrality.
The dollar should extend its gains against Eur, Aud and other major currencies, but the outlook for USD / JPY is complicated. The USD / JPY declined as safe haven flows returned home after President Trump hinted that Japan could be the target of his next commercial fight. He focused on reducing deficits and in a telephone interview with the Wall Street Journal said they may not be happy "as soon as I tell them how much they have to pay". On Friday night, he also squeezed the rope against China threatening to impose another $ 267b in tariffs. These threats make it very difficult for stocks and the USD / JPY to increase. Although the yen crosses could be the most affected, if Trump launches more threats next week or China / Japan returns in its own words, the USD / JPY will fall. Earlier this month, we talked about how September is historically a weak month for stocks and President Trump's trade war could make things worse.
The Australian and New Zealand dollars reached a minimum of 2 years and more losses are likely to occur. AUD / USD was the most affected by President Trump's threat of new tariffs in China. Among the increases in mortgage rates, the tensions of world trade and the weakness of the yuan, the outlook for Australia is bleak and, therefore, AUD / USD could extend its fall below 70 cents. The New Zealand dollar also plummeted: there has been an irrefutable downtrend in New Zealand data and the deterioration should be evident in next week's PMI report. We believe there could be another fall from 2% to 3% in NZD / USD before the pair finds a fund.
On Friday we learned that Canada lost 51,000 jobs last month in the nation's largest province, Ontario, and that part-time work fell by the most in almost a decade. The increase in full-time work is encouraging, but with such a significant setback, the economy does not run the risk of overheating. However, the market is looking for a rate hike at the Bank of Canada this year and, according to Lt. Gov. Wilkins, the central bank discussed the option of "gradual approach" to the rate hikes in its policy statement, adding that there would normally be an increase at this point to pre-empt inflation. This tells us that the central bank is clearly aggressive and open to the idea of raising the interest rate before the end of the year. However, they also do not want to pre-commit without seeing how commercial talks progress. If an agreement is reached with the United States before the October meeting, there is nothing to prevent a walk. Not only would we see an aggressive USD / CAD drop when the holder arrives, but it will be the beginning of a new bearish trend that could bring the pair to 1.29. If there is no agreement, the USD / CAD could remain firm in the decision of the rate. Pay attention to Fundamentals of the currency economy here!