Written by the Market Insights Team
Latest US job report cements no rate cuts this week
Kevin Ford – FX & Macro Strategist
The labor market tends to be a lagging indicator during periods of economic softening. After the latest nonfarm payroll (NFP) report, the pressing question is whether this will be the last strong jobs report before tariff impacts begin to take hold. Here are the key takeaways from the latest data:
- A 58K downward revision to the previous two months stands out, continuing the trend of negative adjustments. April may follow suit.
- Part-time jobs have made up a sizable portion of overall payroll gains over the past three months, raising concerns about labor market stability.
- Health care added 51K jobs, while manufacturing lost 1K, slightly better than expected but coming off two consecutive months of gains.
- Federal government jobs fell by 9K in April, bringing the total decline since January to 26K.
- Hourly wage growth slipped to 0.2 percent on a three-month average—the lowest since the pandemic and below 2019 levels—suggesting weakening labor demand.
One thing seems certain after this: the Fed won’t be cutting interest rates at this week’s meeting.
What’s up with the markets?
Kevin Ford – FX & Macro Strategist
Why is the VIX at 23, practically at the same level before Liberation Day? Why are investors still willing to pay the same price for stocks as they did 30 days ago, despite current level of tariffs and the worries about slowdown in the economy? Is this recovery irrational?
On one hand, markets are welcoming the first glimpses of de-escalation in the trade war between US and China, and this time, it’s confirmed that China might soften its stance, although with conditions.
But there’s another angle to this surprising rebound in sentiment. A month ago, the worst-case scenario was a big question mark, an unknown variable looming on the horizon. Today, that uncertainty has shifted, and markets now have a clear view of the potential downside. The U.S. administration has already begun to retreat from its initial stance. The question is no longer about how severe the tariffs will be, but rather how much of it will be reversed and mitigated.
Markets inherently dislike uncertainty, and the level of ambiguity has diminished compared to March. What was once an unpredictable risk has now become a known challenge, one that investors can assess more rationally. While the situation remains fluid, the prevailing sentiment suggests that conditions may not be as dire as initially feared, leading investors to maintain valuations despite the remaining headwinds. US stocks have embraced the re-certainty from the U.S. administration and major equity indexes have erased all loses following ‘Liberation day’.
The U.S. dollar, meanwhile, hasn’t experienced the same enthusiasm. While it has seen a slight recovery, it has lagged behind the broader rebound and shift in market sentiment. As May begins, the key question is whether the DXY will climb back above 100 and maintain its historical trend of May appreciation or if concerns over de-dollarization and more secular trends will continue to weigh on its performance.
So, what’s the biggest risk ahead? The lagging impact of tariffs on the economy. Markets may be underestimating just how much pressure is coming, with average U.S. tariffs set to jump roughly tenfold compared to 2024. While hard data has held up better than surveys so far, recession risks are growing.
Will the current buy-the-dip momentum carry markets through the summer once tariff effects start hitting growth and inflation? That’s the real test and negative headlines might come sooner than expected. According to the executive director of the Port of L.A., retailers could run out of full inventories in just seven weeks due to U.S.-China trade tensions.
While markets are hopeful that major tariffs will be negotiated down, the U.S. administration seems unlikely to abandon the baseline 10% tariff anytime soon.
De-escalation hopes help Loonie
Kevin Ford – FX & Macro Strategist
Our initial assessment that USD/CAD would drift toward 1.39 as the U.S. dollar rebounded on risk-on sentiment turned out to be off the mark. Instead, tariff-related headlines have helped the Loonie hold the 1.38 level and even test a potential breakout lower.
Canadian Prime Minister Mark Carney is set to meet U.S. President Donald Trump in Washington on Tuesday to discuss trade relations and broader bilateral ties. However, for USD/CAD to sustain its downward trajectory and break below key levels, it will likely take more than preliminary discussions,
The Loonie has also found support following China’s indication that it is assessing the possibility of initiating trade talks with the U.S.
Reviewing monthly prices, for the Loonie to sustain momentum below the 20-month SMA at 1.382, will require solid and concrete work in the tariff front with a clearer timeline for renegotiating the CUSMA/USMCA trade deal.
As a final note, one of the most notable developments in FX markets this past week has been the sharp appreciation of the Taiwanese dollar. Single-session rallies of this magnitude against the U.S. dollar have not been seen since the late 1980s and this is the biggest daily drop against the CAD ever. Unlike previous spikes, this movement does not come after central bank intervention or external pressures. The surge appears to be driven by genuine investor demand for Taiwanese assets amid improving economic conditions, as well as optimism that trade tensions may be easing.
U.S. yields higher, Oil finding support at $55
Table: 7-day currency trends and trading ranges
Key global risk events
Calendar: May 5 – 9
All times are in ET
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*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quothave a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
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