Market Update: NFP Employment Report and Emerging Market Currencies
Today’s session will focus on the delayed NFP employment report scheduled for 1430 CET. We’ll be getting updates on job data for October and November periodically. Predictions suggest that November’s employment will increase modestly by roughly 50,000 jobs, with an expected unemployment rate rising to 4.5%. Interestingly, the unemployment rate is projected to be zero for October. Numbers that align with these expectations likely won’t shift the Fed’s policy discussions. The market seems to have almost priced in a 25 basis point rate cut from the Fed by April, with another potential cut by September. However, U.S. money markets experienced a decline after the Fed unveiled extensive Treasury bill purchasing plans last week, which led three-month dollar hedging costs to drop to levels not seen since September 2022. Additionally, October’s retail sales and S&P PMI data will also be released today, but are unlikely to create dollar volatility.
Turning to emerging market currencies, there has been notable appreciation recently. Despite this week’s disappointing activity data from China, the focus has shifted to the Renminbi as USD/CNH nears 7.00. Interest in the yuan has picked up after November’s trade figures indicated a $1 trillion trade surplus for China during the first 11 months of the year. Speculation suggests that Chinese exporters may be biding their time, waiting for more favorable conditions to sell their currency profits. However, there is some debate about whether local authorities should permit the renminbi to strengthen to help pivot the regional economy from an export focus to boosting domestic demand. Notably, we’re witnessing a rare situation where the People’s Bank of China (PBoC) is pegging USD/CNY higher than model-based estimates, which has not typically been the case in recent years. Lin Song, a Greater China economist, believes the PBoC won’t rush into significant yuan appreciation, although pressure for change could mount by 2026, especially if the anticipated two additional Fed rate cuts and a softer dollar come to fruition.
The Renminbi is particularly important since it influences the broader trend of emerging market currencies. Just yesterday, we observed that major EMFX pairs like USD/MXN and USD/ZAR are under considerable downside pressure. In light of the strong local narratives outlined in our 2026 currency outlook, we expect increased interest in the rand as a potentially beneficial move related to the renminbi.
Generally, heightened interest in emerging markets usually leads to a somewhat negative outlook for the dollar. Additionally, due to seasonal trends, we anticipate a slight weakening of the dollar as the year draws to a close unless the NFP data offers a surprisingly positive twist. If the dollar index drops below 98.00, it might rise to 97.80. On the flip side, 98.80 seems to act as a resistance point for intraday trading.
