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Disappointing payrolls in September could see US rates unchanged in October

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The September jobs report was one of the most disappointing print this year, with the exception of the seasonal weak print seen in March earlier. The US economy added 142k jobs below the average trend of 200k and missing estimates of 201k. Last month’s (August) payrolls were also revised lower from 173k to 136k. The only silver lining in the September’s print was the unemployment rate which remained unchanged at 5.1%. The average hourly earnings also stayed flat for the month at 0.0%, missing estimates of 0.2%, while the previous month’s average hourly earnings was revised higher to 0.4% from 0.3% as previously reported.

The weak NFP print saw the US Dollar break down sharply with the technical resistance at 96.55 proving a tough nut to crack. The Dollar Index slipped from the highs of 96.35 to close the 4-hour candle just above 95.35. On the technical basis, prices have clearly broken down the short term major support at 95.85 through 95.6. In the near term if prices fail to rally back above this level of support, it could be another few sessions of sideways trading with the next support at 95. However, there is a risk of a further decline lower with the main support coming in at 93.25.

From a fundamental basis, the September jobs report sharply dents any plans for the Fed to hike rates in its October meeting. Besides the fact that there is no press conference scheduled, Ms. Yellen, in her press conference in September noted that the Fed could call for one if there was to be any rate hikes. However, from the data point, there has been nothing encouraging for the US Dollar over the past month, with the exception of the second quarter GDP which posted one of the strongest gains of 3.9%. But looking forward, Friday’s factory orders for the month fell -1.7% which saw the Atlanta Fed’s GDPNow model dip below the 1.0% handle while mainstream institutional forecasts point to the third quarter GDP declining to 1.2% – 1.8%, a sharp fall from Q2’s stellar performance.

With October rate hikes most likely written off, this leaves November and December as the remaining Fed meetings for a rate hike. It would be an understatement to note that the Fed’s rate hike plans for 2015 most likely to not materialize given the current trend.

Besides the Fed’s dilemma, looking forward, it would be interesting to see how the other Central Banks react especially in terms of the proxy currency wars which have seen most of the other economies talking down their currency in a bid to boost inflation. The week ahead will see the RBA and the Bank of Japan convene for their monthly monetary policy. While no change is expected from either of the Central Banks, the markets will clearly be looking to the press conference/policy statements which could clearly carry a dovish view.

In terms of data for the week ahead, the FOMC meeting minutes will be another main risk event to watch for in terms of the language. However with the September payrolls being a near disappointment, it is unlikely that the markets will pay much attention to the September FOMC minutes for long.

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