Dollar sentiment improves despite disappointing May jobs report

The nonfarm payrolls increase of 138000 was below both a downwardly revised 174 thousand gain in April and market expectations of 185 thousand growth in nonfarm jobs. The disappointing May jobs report underscored unexpectedly weak economic data after weak GDP growth in the first quarter. Other data didn’t point to a stronger performance which could lead to a bounce in second quarter GDP. Expansion in services sector also slowed: the ISM Non-Manufacturing PMI ticked lower to 56.9 in May from 57.6 in April. Factory orders declined 0.2% on month in April. The fall in total vehicle sales in May to 16.66m annualized rate from 16.88m the previous month points to declining consumption expenditures not boding well for the Q2 GDP rebound. The widening of the trade deficit in April to $47.6 billion from $45.3 billion in March has the same negative implication for Q2 GDP. Pending home sales also declined in April. And while the unemployment rate declined to 4.3% from 4.4% in April it can mostly be attributed to decline in labor force participation rate, and the growth of average hourly earnings remained at low 0.2% in May. Another positive piece of data was the uptick in ISM Manufacturing PMI to 54.9 from 54.8 in April. However investors expect the Federal Reserve will hike rates 0.25 percentage points to 1% - 1.25% range despite lower than expected growth in May nonfarm payrolls and recent weak data. Investors increased the net long dollar position. As is evident from the Sentiment table, sentiment improved for the Canadian dollar, euro and Swiss franc. And the euro became the only major currency held net long against the US dollar.as the Australian dollar net long changed to a net short position.

The euro sentiment improved despite a dip in euro-zone retail sales growth to 0.1% in April from downwardly revised 0.2% in March while the unemployment rate declined to 9.3% from 9.4% and the final Manufacturing PMI for May was confirmed at 57 following 56.7 reading for April. The net long euro position rose $0.25bn to $10.43bn. Investors cut both the gross longs and shorts by 11337 and 12477 contracts respectively. The British Pound sentiment deteriorated ahead of UK general election as the Gfk consumer confidence improved to negative 5 in May from negative 7 in April and construction services expansion accelerated. The net short position in British Pound widened $0.59bn to $2.96bn as investors cut the gross longs and built shorts by 5427 and 1638 contracts respectively. The bearish Japanese yen sentiment intensified despite a 4% jump in industrial production in April following a 1.9% contraction in March. The net short position in yen rose $0.39bn to $6.29bn. Investors cut the gross longs and covered shorts by 3668 and 916 contracts respectively.

The Canadian dollar sentiment improved as the economy accelerated due to jump in vehicle purchases and rebound in business investment. The Q1 GDP grew at 0.9% on quarter after 0.7% expansion in the previous three months. The net short Canadian dollar position narrowed $0.27bn to $7.03bn. Investors increased the gross longs and covered shorts. The $229 million net long Australian dollar position turned into a $9 million net short as the Reserve Bank of Australia decided to leave interest rates at 1.5%. Investors cut the gross longs and covered shorts. The sentiment toward the Swiss franc improved with the improved economic growth: the Q1 GDP grew 0.3% on quarter following upwardly revised 0.2% expansion in previous period. The net shorts narrowed by $0.22bn to $2.15bn. Investors cut both the gross longs and shorts.