China Helps AUD, Euro Below 200-DMA

The US dollar ripped higher on Friday despite a 180-degree turn in market sentiment after a solid non-farm payrolls report. The Canadian dollar edged out USD as the best performer on Friday. The Australian dollar is strong to begin the new week after the Chinese services PMI rebounded from a 19-month low.

Non-farm payrolls increased 171K compared to 125K expected and the unemployment rate ticked higher to 7.9%, as forecast. The initial reaction to the report was positive sending the S&P 500 more than 10 points higher shortly after the open.

Interestingly, the US dollar rallied after the report, suggesting the risk-on/risk-off may not have the same implications going forward. If the dollar continues to rally on better data, it points to US growth and investment as a driving factor.

An alternative argument would be that the foreign exchange market was a step ahead of stocks. The S&P 500 later reversed and closed the day down nearly 1%. The dollar strengthened in both scenarios.

The euro closed the week a shade above the 200-day moving average at 1.2828 but broke below in early-week trading to as low as 1.2808. Cable remains above 1.6000 despite repeated attempts to break the psychological barrier.

The official China non-manufacturing PMI rose to 55.5 in October from 53.7 the previous month. Combined with the better manufacturing PMI, its an early indication that growth is picking up.

The Australian dollar was boosted by the China PMI and domestic retail sales, which rose 0.5% in September, slightly stronger than the 0.4% expected. With the RBA decision such a close call, the market will be ultra-sensitive to incoming data.

-AB