The US Dollar (USD) is tracking a little softer overall for a fifth day running but the DXY is holding above yesterday’s session low, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD retains a soft undertone on weak ADP

"Most currencies are firmer against the USD, the exceptions being the CAD and NOK which are down smalls, perhaps reflecting crude oil prices slipping back to near recent range lows as markets continue to fret about increased OPEC+ supply. Meanwhile, yesterday’s ADP data, suggesting a further slowing in the US labour market, is weighing on USD sentiment. September private sector jobs fell 32k and the August data was revised lower from a 54k gain to a 3k fall. The weak data reflected a re-benchmarking of the series to some extent, which resulted in a 43k drop in jobs last month relative to pre-benchmark data."

"Even so, the data are weak and while ADP does not do a great job of tracking the monthly NFP release, it does reflect the trend in official hiring data quite closely. ADP is down for two consecutive months and negative in three of the past four. That is hard to ignore as a clear sign of more pronounced labour market weakness. US yields dropped as swaps reflected more conviction around the outlook for 50bps of Fed easing by year end (just under 90% priced in, from nearer a 75% probability at the start of the week)."

"Lower yields and spread compression plus the uncertainty driven by the US government shutdown are weighing on the USD generally. At this point, there is no indication that the two sides in Washington are prepared to negotiate. US Initial Claims and Factory Orders data are still on the calendar today but are unlikely to make an appearance. Most (around 75%) Department of Labor/BLS staff are being furloughed. The Census Bureau which collates Factory Orders (and other reports) has also suspended the collection and distribution of economic data over the shutdown. Japan releases jobs and (final) PMI data while BoJ Governor Ueda speaks this evening."