USD slips back, CAD underperforms - Scotiabank

The US Dollar (USD) shrugged off the larger-than-expected downward revision to US jobs data with some ease yesterday, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD edges lower after shrugging off jobs revision yesterday

"Markets were perhaps short dollars running into the data and gains largely reflected profit-taking or repositioning after the fact. The downward revision does suggest that US economic momentum might be a little weaker than previously thought but market expectations for Fed easing are little changed following the updated data, with a 25bps cut still fully priced for next week and just under 90% priced for 75bps of easing by year-end. Something else that did no change was White House criticism of the BLS and the administration's criticism of the Fed."

"Late last night, a court ruled that President Trump didn't have cause to fire Fed Governor Cook, however, but an appeal is likely, followed by a Supreme Court ruling. The USD has slipped back somewhat in overnight trade, pulling the MXN and CAD down with it, in light trade ahead of US inflation data due over the next two days. But PPI and CPI may not have too much impact on the dollar, given the Fed's shifting focus towards the labour market. August PPI is expected to rise 0.3% M/M in headline terms, keeping the Y/Y pace of gains at 3.3%."

"Global stocks are mostly firmer (US equity futures are more mixed) while major bond markets are mostly softer. Geo-political risks (Isreal's strike on Qatar yesterday and news earlier today of Russian drones violating Polish airspace) have had little impact on sentiment. The DXY's firm close yesterday may ease downward pressure on the dollar broadly in the short run but the general dollar tone remains relatively soft and more choppy range trade may follow, rather than a deeper dollar recovery."