Last week, US government data beat all estimates when it reported that Non-Farm Payrolls rose by 243,000 in January. The official figures easily surpassed the 140,000 estimate by economists.
Additionally, the unemployment rate came in at 8.3%, the lowest level in nearly 3 years. This also recorded the fifth consecutive month of falling unemployment in the US.
Immediately after the announcement, yields on 10-year US Treasuries spiked up 10 basis points to 1.92%, and the EUR/USD dropped over 100 pips.
Ben Bernanke, in particular, would be heaving a sigh of relief. In late January, he sent the strongest signal yet that the Federal Reserve was considering additional asset purchases to boost growth. This was in tandem with his new pledge to keep interest rates low through at least late 2014.
With the solid NFP numbers, QE3 may be off the table for now.
Besides the positive impact on the US economy, let’s take a look at how two of the largest trading partners to the USA – Canada and Japan – fared.
Japan
The camp in Japan, particularly the central bank and the Ministry of Finance, will be celebrating.
Just last week, Finance Minister Jun Azumi said, “Speculative moves are increasing in the market and we can’t overlook them.” This signals an intention for possible intervention again, after a record round of yen sales late last year.
USD/JPY was flirting with the 76 level prior to the release of the NFP numbers. Luckily for Japan, USD/JPY took off after the numbers were released clearing 50 pips in about an hour.
Had the NFP come in at a weak number (anywhere below 100,000), USD/JPY would have broken below 76, forcing the Ministry of Finance to intervene. That play looks to be off the table for now.
Canada
The Canadian dollar strengthened in accordance to the NFP numbers. This was particularly interesting, considering the fact that Canada had a disappointing jobs report just an hour prior to the NFP release.
The change in employment came in at 2.3K compared to the forecast of 23.3K. The unemployment rate rose to 7.6%, the highest level since April 2011.
Why did the Canadian dollar strengthen although it reported disappointing numbers?
The reason lies in the risk-on environment created by the blowout NFP numbers. As Canada’s largest trading partner, the solid NFP numbers created an expectation that the US would increase trade with Canada.
This sent the USD/CAD below parity for the first time in three months.
