EM & Commodity Currencies Well Bid Post-NFP

The Jan. NFP cards have been dealt and US equities are up more than +1% on the back of the much better than expected figures (243k vs. consensus 140k on the headline number, 257k vs. 160k for private payrolls). In FX, ZAR (South African Rand) gaining +1% vs. USD so far, outpacing most of its G10 and EM counterparts. MXN (Mexican Peso) trailing rand’s upside vs. the buck but +0.72% in daily gains doesn’t look too shabby, and neither does Aussie’s +.49% move higher vs. USD so far. Even the loonie (CAD) is managing to gain an upper hand vs. USD despite tepid Canadian jobs data in the backdrop of an impressive US jobs report.

There seems to be a noticeable pattern developing in post NFP price action – commodity currency outperformance. Hindsight is 20/20 but it seems US equity market reactions to well below, at, or well above consensus Jan. NFP prints were akin to playing blackjack vs. a dealer hitting anything below 20:

* Well below: Stocks likely would’ve ended higher on increased QE3 expectations as Jan.  FOMC seemed to have lowered market perception for Fed action.

* At consensus: Positive momentum likely to have continued on elevated QE3 speculation.

* Well above: Something we don’t have to postulate on as positive NFP data surprise has so far led to likewise equity market momentum.

Higher stocks also leading to more interest in ‘riskier’ currencies. Hearing rumors of decent macro demand behind some of the positive commodity ccy momentum today, especially in the EM space with USD but more-so EUR primarily used as funding currencies. However, also hearing some shorter term real money players taking profits as Big Ben tick-tocked to a weekly close across the pond ahead of the key 200-day sma in a few EM ccys - EUR/HUF and USD/ZAR still holding above their respective 200-day smas, EUR/TRY broke below it in early Jan, and USD/MXN testing the waters below at the moment.

The predicament likely facing many traders is whether one should chase reported macro real money bid price action or sit back and wait for better reward: risk value on retracements. My take, think the latter is also the wiser primarily due to two reasons – 1. Still think tail risks exist from Europe’s debt crisis 2. If much worse than expected NFP would increase the scope for QE3, than much better than expected numbers should decrease the scope for QE3 and also bring into question ‘exceptionally low’ rates until late-2014.