US FX WRAP: Soft NFP headline hits USD

USD was hit by an unexpected negative NFP reading, -23k (exp. 91k), alongside 103k negative revisions to the prior two readings. On the surface, the bar appears higher for upcoming inflation reports to push the Fed in a more hawkish direction; however, the fall in the unemployment rate to 4.1% from 4.2% complicates the policy assessment. Highlighting this, Fed's Barkin shortly after the report said the u/e rate is the best measure of job market health; thus, the NFP report may mean policymakers remain somewhat confident of a stable labour market despite slowing employment growth. Meanwhile, Fed's Musalem showcased the growing divide within the FOMC, revealing he favoured higher rates at the last meeting, now meaning there are at least five members who would have preferred to hike last week. Separately, the NY Fed SCE was unalarming as inflation expectations were little changed whilst labour market views were mixed. As it stands, a September rate hike remains a coin toss, with focus set on next week's CPI and PPI report to guide the Fed's decision-making. DXY briefly set a new August low of 99.403 before seeing slight relief to 99.54.

USD/CAD was sharply sold amid a weaker-than-expected US payroll growth as well as a strong Canadian jobs report. Canadian employment grew 75.1k, well above the expected 12.5k, lifted by accelerations in both part- and full-time employment. This helped push the u/e rate down to 6.4% from 6.5% despite an uptick in the participation rate. Overall, a welcome jobs report; however, taken alone its unlikely to alter the BoC's policy view until a stable trend emerges. USD/CAD is now back at levels last seen in June, trading at ~1.3938.

JPY was supported by narrowing UST-JGB yield differentials in response to the mixed NFP report. Soon after, JPY extended as a result of jawboning from Japanese Finance Minister Katayama. She said that FX moves have not been backed by real demand and will not hesitate to intervene. USD/PY hit lows of 156.666 before partially recovering to ~158.59