Searching Through the Noise

A series of major data points left no clear signal on the direction of the US economy or the Fed but created plenty of volatility. The yen was the top performer while the Australian dollar lagged. Australian trade balance is on the agenda after AUD/USD breached 0.9000.

Traders hoping for a clear signal on the taper or no-taper debate didn't get it Wednesday. ADP employment rose to the highest of the year at 215K compared 173K and October data was also revised higher.The dollar kicked higher on the release but was reluctant to move ahead of the ISM non-manufacturing report and after the data was released it became clear why. The index fell to 53.9 from 55.0 and the employment component fell to the lowest since May.

USD embarked on an extended decline after the data but it stalled late in the day. The Beige Book anecdotal Fed report didn't show any fresh enthusiasm for the economy, saying that hiring increased modestly or was unchanged.

It's premature to draw conclusions ahead of Friday's NFP report but a December taper is likely to lose support among traders. One reason why is inflation. The Bank of Canada is dealing with the same stubbornly low inflation as the Fed and acknowledged growing disinflation risk in the BOC statement. That helped send USD/CAD above 1.07 to a three-year high.

The strangest signals of all came from gold. It rose as high as $1252 from $1211 and began climbing on the ADP number – something that should have hurt gold. There was talk of a single, large buyer and the move stalled out ahead of technical resistance at $1258.

The Australian dollar was also sold relentlessly, despite Aussie 10-year yields at the highest since 2011. A slightly soft GDP report was not enough to justify the nearly 1.5 cent drop in AUD/USD to 0.8999. Instead, it could be signaling capitulation from the bulls.

Data is light in Asia today ahead of the ECB and BOE decisions later. One event to watch is Australian trade balance for Oct at 0030 GMT.