Asian session review: US dollar is showing negative dynamics

During today's Asian trading, the US dollar declined slightly against major currencies, retreating from the almost 2-week high reached last week. The dollar's pullback was caused by partial profit-taking, as well as correction of positions by investors ahead of the publication of key data on the US labor market. With U.S. markets closed on Monday, liquidity is likely to be thin and traders hesitant in placing large bets.

The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) fell by 0.08% to 101.63. Last week, the index jumped by 1.05%, snapping a five-week decline, as the latest inflation data reduced the need for a significant Fed rate cut - by 0.5% - at the September meeting. This week, the market participants will be focused on the nonfarm payrolls report for August, which will be released on Friday. The July employment report was a warning that the widespread weakening of labor market indicators - to which, until recently, the number of employed seemed invulnerable - should not be ignored. Employment growth in July by 114 thousand was much lower than expected, while hiring figures for the previous two months were revised downward. Even more remarkable was the rise in the unemployment rate to 4.3%, which increased fears of a recession. The employment situation in August will be crucial in determining whether the rapid deterioration in employment conditions in the July report was just noise or a signal that the labor market is struggling to maintain momentum. Most likely, the situation will lean towards the second option, with only a partial recovery in employment and a slight decrease in the unemployment rate. According to forecasts, the number of employees increased by 163 thousand in August after an increase of 114 thousand in July.

The Australian dollar rose 0.2% against the US dollar, helped by positive data from China (Australia's main trading partner). According to the report from Caixin/S&P Global, the manufacturing PMI rose to 50.4 from 49.8 in July. Economists had expected an increase to 50.0 points. A value above 50 points indicates an expansion of activity in the sector. Manufacturing production expanded again in August (for the 10th month in a row), accelerating compared to July, mainly driven by growth in the consumer and intermediate goods sectors. Incoming new orders returned to growth, while export orders fell slightly (for the first time since the beginning of the year) amid reports of deteriorating external conditions. As for the inflationary situation, average input costs are falling fractionally for the first time in five months. In turn, selling prices also declined in August. Overall confidence levels rose to a 3-month high in August. Firms grew more optimistic that improvements in economic conditions and business development efforts will bear fruit in the year ahead.