US dollar succumbs to emerging-market peers as oil whipsawed at US$45

[LONDON] The US dollar weakened and developing-nation currencies rose after US jobs data damped speculation that the Federal Reserve will raise interest rates this month. Oil surged, then pared gains as Saudi Arabia's energy minister released details of talks with Russia.

The greenback fell against most of its major peers, with South Africa's rand and Asian currencies among the biggest beneficiaries. The MSCI Emerging Markets Index capped its biggest two-day advance in almost a month, while European stocks hovered at a four-month high. The pound climbed after a gauge of UK services jumped the most on record, and the yen retreated. Financial markets in Canada, India and the US were shut for holidays.

Friday's US payrolls data showed hiring moderated more than economists forecast in August, while the number of jobs added in July was revised higher. Odds on the Fed raising rates at its meeting this month were pared after the report, to 32 per cent from 36 per cent a week earlier.

As the US central bank ponders when to tighten monetary policy, officials elsewhere are still grappling with lacklustre price growth, with the European Central Bank due to review rates this week, along with Australia, Canada, Poland and Sweden.

"The jobs report probably reduces the probability of a Fed hike in September, but it wasn't so weak that it detracts from the whole concept of an underlying economic recovery," said Daniel Murray, head of research at EFG Asset Management in London.

"That's a completely reasonable backdrop for global equities."

The Bloomberg Ddollar Spot Index, a gauge of the greenback against 10 major peers, fell 0.2 per cent as of 5pm New York time. The measure slid as much as 0.5 per cent on Friday following the release of the payrolls data, before erasing its decline as investors weighed the significance of the revised July figures.

New Zealand's dollar, which offers the highest yield among Group of 10 currencies, strengthened 0.3 per cent Monday, while the rand rose 0.7 per cent, touching its highest level this month.

South Korea's won led gains in emerging markets with a 1.1 per cent advance. Brazil's real slumped 0.8 per cent on concern newly installed President Michel Temer will struggle to win support for measures aimed at boosting growth and shoring up the budget.

Sterling reached its strongest level in almost two months versus the US dollar, rising as much as 0.6 per cent to US$1.3376. While the UK currency's 11 per cent drop versus the US dollar since the referendum is the worst performance among major peers, hedge funds and other large speculators last week reduced their net short positions for the first time since early July.

IHS Markit's Purchasing Managers Index for UK services surged to 52.9 from a seven-year low of 47.4 in July, the biggest monthly gain since the survey began two decades ago.

The median estimate of economists surveyed by Bloomberg was for an increase to 50, the level that divides expansion from contraction. China's services output also picked up in August, data Monday showed. Meanwhile, leaders of the Group of 20 nations are attending an annual summit in Hangzhou, China.

MSCI's emerging markets gauge added 1.1 per cent, after climbing 1 per cent on Friday, while Brazil's Ibovespa index slipped 0.1 per cent, remaining near its highest level in two years.

S&P 500 Index futures were little change at 2,178.75, while contracts on Japan's Nikkei 225 Stock Average slipped 0.6 per cent to 16,895 in Chicago. Futures on other Asian indexes mostly signaled declines for Tuesday, with those on Australia's S&P/ASX 200 Index down 0.4 per cent.

The Hang Seng China Enterprises Index of mainland companies listed in Hong Kong climbed 1.5 per cent to the highest level this year on Monday. Futures on the measure rose 0.1 per cent in most recent trading.

Tencent Holdings Ltd, the Chinese online gaming company and owner of the instant messaging application WeChat, jumped 4.2 per cent, boosting its market value to HK$1.99 billion (S$348.7 billion) to surpass China Mobile Ltd as the nation's most valuable corporation.

West Texas Intermediate crude rose 1.6 per cent to US$45.17 a barrel in electronic trading in New York, after earlier jumping as much as 4.7 per cent on speculation Saudi Arabia and Russia would agree to cap output.

While Saudi Energy Minister Khalid Al-Falih said he was optimistic there would be an agreement to cooperate at a meeting between Opec and other oil producers in Algiers later this month, prices retreated after he told Al Arabiya television that there was no need to freeze production now.

A proposal similar to that being considered failed in April after Saudi Arabia insisted that Iran also participate. Russian President Vladimir Putin and Saudi Arabian Deputy Crown Prince Mohammed bin Salman met Sunday in Hangzhou and agreed to work together to ensure stability in the oil market.

Gold held near its highest level in more than a week, having rallied 0.9 per cent on Friday following the payrolls data.

Euro-area government bonds advanced, with Germany's 10-year bund yields down one basis point, or 0.01 percentage point, to minus 0.05 per cent. Rates on Ireland's debt dropped five basis points to 0.42 per cent.

Australia's sovereign bonds due in a decade fell, pushing their yield up by four basis points to 1.89 per cent. The nation's central bank is forecast to keep benchmark interest rates unchanged at Governor Glenn Stevens' final policy meeting on Tuesday as policy makers wait for the Fed's next move.

Japanese long-term bonds fell, with 30-year debt extending its biggest weekly loss in more than two years, as investors prepared to bid at an auction of the securities on Tuesday. The rout is being driven by speculation the Bank of Japan will reduce its bond-buying program now that it owns a third of the nation's government debt. BOJ Governor Haruhiko Kuroda said Monday he doesn't share the view there's a limit to monetary easing.

"Unless Governor Kuroda directly rules out scaling back bond purchases, the market will continue to hold that as a possibility," said Shuichi Ohsaki, the chief rates strategist at Bank of America Corp's Merrill Lynch unit in Tokyo.

"Selling of longer-dated debt is likely ahead of tomorrow's 30-year auction."

BLOOMBERG