USD lower, factory orders beat expectations

• USD: Lower, ADP falls more than expected, planned layoffs decline, labor costs decline, productivity rises
  
• JPY: Higher, rising risk aversion as global equity markets decline, DPJ supports USD reserve status
  
• EUR: Higher, EU producer prices fall at record pace, GDP as expected
  
• GBP: Higher, UK construction PMI rises to an 18 month high
  
• CAD and AUD: AUD higher & CAD lower, Australian GDP strong, political uncertainty in Canada
  

Overview

USD traded lower Wednesday with the AUD leading the way supported by stronger than expected Australian Q2 GDP and GBP supported by higher UK construction PMI. JPY traded at seven week high supported by risk aversion sparked by report of worse than expected ADP jobs report, a sharp drop in the Nikkei and weaker equity market trade in Europe. The impact of the ADP report was partly offset by a report that US nonfarm labor costs posted their biggest decline since 2000 and nonfarm labor productivity posted its biggest gain since 2003. EUR traded mixed initially pressured by report that EU producer prices declined at a record pace in June. CAD traded lower pressured by political uncertainty in Canada as Canada's Liberals say they will no longer support the minority government and by report of weak auto sales. Investors are trying to gauge whether recent data which shows the global economy improving is sustainable. Caution about the global economic recovery limits USD downside as risk aversion re-emerges. Equity markets and investor sentiment are approaching a key inflection point. It's unclear whether the re-emergence of risk aversion will be short-lived or begin to trend higher. Economists declared that the US recession ended after Tuesday’s release of ISM manufacturing data which rose above 50, but it's not clear whether there will be solid evidence of economic recovery until later in the year. An uneven US and global economic recovery may lead to more choppy price action and FX markets.

Today’s US data:

August ADP employment falls by 298k, the trade expected a decline of 250k. Q2 productivity rises 6.6% and labor costs declined by 5.9%. July factory orders rise 1.3%, a 0.8% rise was expected. USD drifted lower post release of the factory orders report as stocks stabilized.

Upcoming US data:

On September 3rd initial jobless claims for the week ending 8/29 will be released expected 556k compared to 570k last month along with August services PMI expected 48 compared to 46.4 in July. On September 4th August unemployment rate would be released expected at 9.5% compared to 9.4 last month with nonfarm payrolls -220k compared to -247k in July.