The FX market is disagreeing with the fixed income market today

The US dollar is steadily bleeding lower in the aftermath of the non-farm payrolls report. The data was mixed with a softer headline but lower unemployment. Wages rose but it was due to benchmark revisions and fewer hours worked, suggesting a one-off effect.

The bond market took it all as bearish, with US yields up 4-5 bps across the curve. Normally, that would correspond with a higher US dollar and it’s certainly been choppy following the report. But the latest move in the US dollar is lower, illustrated by a rising AUD/USD shown here.

That’s a rare divergence between the two and may reflect some willingness to buy equities and money flowing in that direction. The market has also been digesting where the trade war stands all week and concluding a lower likelihood that Trump will actually use (rather than threaten) tariffs on major trading partners; however that’s going to remain a volatile metric.

Another dynamic is in Congress where Trump is talking about massive tax cuts that could at $11 trillion to the deficit over a decade (and the deficit is already high). There could be some kind of unfolding dynamic where deficits cause some USD angst even as yields rise but I find that hard to believe.

This article was written by Adam Button at www.forexlive.com.