Dollar still firm after job gains, but can it last?

Strong and steady is the dollar story this Monday morning. Extending gains from Friday’s payrolls report, investors are looking past tepid wage growth to focus on the headline figure.

June saw the second largest monthly job gain this year, and as the labor market becomes tighter and tighter, many hope to see wages pick up. This leaves us in the middle of a not-too-hot, not-too-cold scenario that should support the Fed’s aim to hike rates again before year-end, but does little to move the dial on long-term expectations.

Investors continue to be wary about the long-term outlook for the USD. The US Commodity Futures Trading Commission (CFTC) releases a weekly Commitment of Traders report. Friday’s showed that traders are scaling back their bets on a stronger US dollar. Long positions, which signal a bet for a stronger currency, dropped by $200 million last week. At $4.5 billion dollars, it was the lowest reading since the middle of last year.

Overall, we are looking for Friday’s CPI inflation and retail sales figures to give us a fuller picture of the economic backdrop, and subsequently drive USD.

Yen keeps getting pinned down

The dollar is holding a two-month high against the Japanese yen. Despite a surprisingly optimistic view of Japan’s regional economies, Bank of Japan Governor Haruhiko Kuroda reiterated his commitment to ultra-accommodative monetary policy.

Solid exports and private consumption continue to support the economic recovery, but until inflation is stable above the BoJ’s 2% target, Kuroda-san isn’t ready to lay off the gas.

Combined with firmer risk appetite, the BoJ’s dovish tone could continue to support the yen in the near-term. We do see a fair amount of risk to the USD/JPY pair with US data on Friday.

CAD ignores oil moves to focus on BoC

Oil prices are on the back foot Monday morning after the lowest close in two weeks after an OPEC minister said Libya and Nigeria may be asked to cap their production. Libya and Nigeria had been exempt from the supply cuts, but as their production picks up the efforts of the OPEC cuts have been further undermined.

While the headlines would normally spark a move higher in oil prices, investors are taking this as a signal the OPEC is concerned their cuts are not effective enough to stabilize oil prices and meaningfully curb global oversupply. OPEC Secretary-General Mohammad Barkindo said it would be premature to discuss deeper output cuts at this time.

The dip in oil took the Canadian dollar lower overnight, but CAD has since recovered losses against the USD as investors turn their heads to monetary policy.

The Bank of Canada is expected to raise interest rates on Wednesday. This would be their first rate increase in nearly seven years after having to cut rates in 2015 to combat the effect of falling oil prices.

EURUSD: Euro flat against the greenback ahead of a Eurogroup meeting this week.

GBPUSD: The pound continues to trade on the back foot after weak economic data last week.

AUDUSD: Aussie dollar weaker even as Chinese consumer prices remained stable in June.

USDCAD: CAD recovered overnight losses, looking past weakness in oil in anticipation of a rate rise on Wednesday.

USDJPY: Yen remains at a two-month low Monday after the Bank of Japan kept their commitment to ultra-loose policy.