USD strengthens wage gains – Scotiabank

The US dollar (USD) is consolidating last week’s solid rally, notes Shaun Osborne, chief FX strategist at Scotiabank.

The USD maintains a firm tone on yields

“After strong gains last week, stocks are starting the week on a slightly softer note, while bonds are generally weaker. US 10Y yields are trading above the 4% mark for the first time in two months after Friday’s US jobs data erased the risk of another jumbo rate cut from the Fed in November. Yield beads have moved favorably for the DXY and, perhaps with a bit more focus on the looming US presidential election, the window for the USD to remain firm, or perhaps a little firmer, is clearly open.”

“The USD recovery is coming a bit earlier than the typical seasonal pick-up we see in Q4 before the late-year fade. DXY chart performance is bullish after a positive close in the week to Friday. Intraday patterns suggest minor consolidation ahead of another push higher, potentially in the 103-104 range over the next two weeks. The Fed’s Kashkari, Bostic and Musalem are speaking later today (the latter two after our market close).”

“Japan releases August cash labor income data this evening. July figures were revised down slightly (to 3.4%) from preliminary data, but underlying wage trends are still strong. Another firm wage gain may not move the dial on low October tightening bets (less than 1bps priced in) for the 31st, but should support expectations that the BoJ may tighten again at its next meeting on December 19.”