A rebound in US non-farm payrolls data surprisingly saw the US dollar fall yesterday against all of the other majors, with the exception of the Japanese yen.
Yesterday’s headline reading for April of +211k new jobs stood in stark contrast to March’s number of only +75k (revised lower from +98k). March’s figure had missed market expectations wildly (+174k had been expected) and had been accompanied by a tick down in average hourly earnings.
Today’s headline number beat market expectations by 17k jobs and, like the headline, there was no surprise this time in average earnings, which rose in April by 0.3%, from 0.1% in March.
The unemployment rate fell again in the US and now stands at 4.4% – its lowest since 2007.
In spite of this, the US currency weakened. The US Dollar Index (DXY) fell to 98.58 and, significantly, broke from and closed below a small pocket of congestion between 98.70 and 99.40 that had contained the index for the past nine trading days. The index has now lost 5% since highs posted back in January and has given back virtually all gains made since Donald Trump’s election victory last November.
Crumbling Commodities Still Taking Their Toll
For the umpteenth time in recent weeks on BestExchangeRates.com, we have to discuss the crumbling commodities markets and their shake-up of exchange rates.
US WTI oil crashed through $44 per barrel yesterday and although there was a pretty remarkable reversal heading into the day’s end, a close at $46.43 puts oil down more than $7.30 per barrel (almost 14%) in the past three-and-a-half weeks.
Iron ore, Australia’s biggest export, falls day by day. For 62% content iron ore, a close on Friday slightly above $62 per metric ton confirmed the commodity’s sixth weekly decline out of the past seven.
The moves in oil and iron ore are perhaps the most newsworthy but are only representative of a much broader sell-off in commodities.
Commodities-driven currencies are reeling from these moves. At the week’s end, the Australian dollar had fallen for its third straight week (AUD/USD 0.7414), as had the Mexican peso (USD/MXN 18.96). The Canadian dollar finished unchanged on the week (USD/CAD 1.3647) but had fallen in the previous two.
Analysts have mixed views on the likely future direction of commodity prices.
Investors in the oil market, who have recently come to the realization that OPEC production cuts are largely ineffective, have room for optimism following Friday’s upbeat US jobs data.
“The jobs report is extremely positive for the U.S. economy and should help boost oil demand,” said Mark Watkins, investment manager at U.S. Bank, following the data’s release.
For iron ore and other ‘China commodities’, pessimism persists.
Richard Knights, a commodities analyst at Liberum Capital, told the Sydney Morning Herald this morning that “the market [for iron ore] is still oversupplied to the tune of 7 per cent and oversupply is growing. Only much lower prices will shake out excess capacity. I expect $40s in the second half of 2017 and possibly $30s.”
Certainly, a move to the $30s or $40s in iron ore would do tremendous harm to the buying power of the Australian dollar.
Beat the Commodities Slump by Changing Australian Dollars Now
BestExchangeRates readers in Australia in need of foreign currency or sending money overseas this year who are concerned by Knights’ outlook on iron ore, should consider changing their Australian dollars sooner rather than later. By changing money now, holders of Australian currency would avoid any further falls in AUD and make the most of their currency’s buying power.
Instead of plodding down to the local bank, readers wanting to change money would be wise to first make use of our FX comparison calculators, which provide an easy way to find the cheapest providers of travel money and foreign currency transfers. BestExchangeRates’ trusted partners don’t pad their margins like the banks and local Bureau de Change. With our providers, savings totaling 2-3% in Australian dollar terms are common.
Disclaimer: Please note any provider recommendations, currency forecasts or any opinions of our authors should not be taken as a reference to buy or sell any financial product.