USD Falls On ADP Employment Report Boosting Precious Metals, China Sends Message To Yuan Bears, ASX SPI200 Futures Up 9 Points

A private U.S. employment report by ADP on Thursday suggested that 153,000 jobs were added between November and December slightly below the 2016 average of 174,000. There are some signs that the strength of gains in employment is fading, although this is to be expected following a seven year recovery that has seen the unemployment rate drop from 10% to 4.6%. The figures were lower than the market was anticipating, with expectations for a gain of 175,000 and comes ahead of the all-important non-farm payrolls (MoM Dec) on Friday where expectations are also for a reading of 175,000.

In reaction the U.S. dollar index weakened -1.19% falling with the ten-year treasury yield which declined -8 basis points to 2.3716%, as did the two-year yield down -5.5 basis points at 1.1780%. Adding to the selling of the U.S. dollar overnight was action by Chinese policy markers which boosted overnight borrowing costs up to as much as 30% in order to defend the Yuan. Such high borrowing costs make it unprofitable and painful for short sellers who quickly cover their positions. The offshore Yuan (CNH) gained +1.19% taking its two day advance to +2.5% as it pulls back for the important psychological level of 7 while the official fix for the onshore Yuan (CNY) was +0.65% stronger. This move by Chinese policy makers is a clear signal to those betting on a devaluation that they are serious about their commitments to maintaining a stable currency in 2017.

The weaker dollar is providing some much needed relief for precious metals spot gold & silver which have been absolutely hammered over the past few months, with gold jumping +1.48% overnight and silver also up +0.85%. The first chart below highlights both the precious metals, which appear to have formed a near-term low opening up the decent probability of corrective moves higher in the coming 1-2 weeks.

Both WTI & Brent crude oil, shown on the second chart below, were +0.96% & +0.71% higher at the time of writing following declines in OPEC production according to a Reuters survey and a larger than anticipated draw in U.S. crude oil inventories. The Reuters survey suggests that OPEC group production decreased by 200,000 barrels in December to 34.18 million ahead of an agreement to reduce output to 32.5 million barrels starting from January 1st. U.S. data showed that crude oil inventories for December 30th fell 7.051 million barrels, larger than the 2 million decline forecast although this was offset by larger pickups in gasoline and distillate inventories.

For oil prices attention will now be on two factors, 1) whether OPEC successfully monitors and enforces allocated production cuts and 2) the rising Baker Hughes U.S. rig count. The number of active rigs has risen to 525 in December from the May 2016 low of 316 as higher oil prices make it profitable to pump oil again and that should keep oil prices capped to US$60 in the near-term.

Locally the ASX200 finished +0.3% higher at 5,753.35 and we can expect a modestly stronger start to trading this morning with ASX SPI200 futures up 9 points in overnight trading. If you’re interested in trading global markets and still need practice, click here to open a free $100,000 Rivkin Trader account. 

Data releases:

·         Euro-zone Economic & Consumer Confidence (MoM Dec) 9:00pm AEDT

·         Euro-zone Retail Sales (MoM & YoY Nov) 9:00pm AEDT

·         U.S. Trade Balance (MoM Nov) 12:30am AEDT

·         U.S. Non-farm Payrolls , Unemployment Rate and Average Hourly Earnings (MoM Dec) 12:30am AEDT

·         U.S. Factory & Durable Goods Orders (MoM Nov) 2:00am AEDT

·         U.S. Baker Hughes Rig Count (Jan 6)

Chart 1 – XAUUSD (Blue) & XAGUSD (Purple)

Chart 2 – Brent (Blue) & WTI (Purple) Crude Oil

To view the Rivkin economic calendar and Global Markets matrix, members can click here.

This article was written by James Woods - Global Investment Analyst, Rivkin Securities Pty Ltd. Enquiries can be made via or by phoning +612 8302 3600.

Complex product warning

This article contains information about foreign exchange contracts, which are considered complex financial products. Please click here to read ASIC's foreign exchange trading article before considering an investment in foreign exchange contracts. 

This article contains information about CFDs, which are considered complex financial products. Please click here to read ASIC's "Thinking of trading contracts for difference?" document before considering an investment in CFDs.
comments powered by Disqus

DISCLAIMER: Rivkin aims to provide clear and simple information to those visiting our website. If any part of this disclaimer does not make sense, please phone Rivkin and ask to speak with a member of our Dealing and Relationship Management Team. Rivkin provides general advice, securities and derivatives dealing services and accounting administration services. Rivkin does not provide advice that takes into account your, or anybody else's, investment objectives, financial situation or needs. We strongly suggest that you consult an independent, licenced financial advisor before acting upon any information contained on this website. Investing in and trading securities (such as shares listed on the ASX) and/or derivatives (such as Contracts for Difference or 'CFDs') carry financial risks. CFDs carry with them various additional risks that differ from more simple securities such as fully-paid company shares. Some of these risks include not owning the underlying instrument from which a price is being derived, settling trades 'over the counter' with a financial institution rather than on a stock exchange, and using leverage to gain access to trades that may have a higher face value than your initial deposit. This risk of leverage means that it is possible to lose more than your initial investment. Our aim is to create more life choices for our clients, which means improving the wealth of clients throughout many market cycles by nurturing a relationship spanning many years. If you are not comfortable with your understanding of the risks involved before using a Rivkin product and service, please contact our office to seek further information or a Product Disclosure Statement, or make an appointment to sit with one of our friendly financial experts. It is in our interest for your Rivkin experience to be a rewarding and comfortable one. Rivkin is a trading name of Rivkin Securities ABN 87123290602, which holds Australian Financial Services Licence No. 332 802.