The US Dollar heads into the long weekend up against all of its major counterparts aside from the safe-haven JPY and CHF. The move higher was prompted by a renewed wave of risk aversion after the monthly nonfarm payroll report showed that the labor market stagnated in August after last month's downwardly revised addition of 85K jobs. Private payrolls increased by a paltry 17K versus the addition of 95K that was expected, and far from last month's 156K, as companies stopped hiring with the recent spike in market volatility and decline in consumer confidence. As the driving force behind the US economy, the threat to an already weak consumer spending has most companies fearing that a double-dip recession may be closer than previously thought. The unemployment rate remained constant at 9.1%. The data has led to a sharp drop in growth-sensitive commodities like oil and copper, and has undercut the recent gains on Wall St., with the DJIA tumbling more than 200 pts to begin the day. Waning risk appetite has buoyed the traditional safe-haven currencies, the CHF, JPY, and the USD as well. However, gains in the dollar have been limited by growing expectations that the Fed will soon announce another round of economic stimulus in one form or another with such continued weakness in the labor market.
The EUR slipped lower within its recent ranges on growing expectations that the ECB may not only be done hiking interest rates, but may soon reverse course and cut. As European manufacturing contracts and business/consumer confidence plunge, the so-called shadow ECB council, a group of 15 Eurozone economists, is urging the ECB to cut interest rates to avoid another recession. With even the German economy, the growth engine of the Eurozone, nearly grinding to a halt, policymakers are considering all options. However, the common currency's decline against the USD has been moderate as investors increase bets that the Fed will soon announce another round of monetary easing.
The GBP is one of the few currencies with little movement overnight with no major economic data to provide direction. PMI construction was released this morning slightly worse than expected at 52.6, which has done little to change investors' collective perception of the weak state of the British economy. While the pound has traditionally fallen in tandem with financial markets over the past three years as a victim of risk aversion, demand for British government bonds and their perceived safety, has provided support.
The JPY is higher this morning, spurred on by the recent wave of risk aversion. However, gains have been tempered by ongoing speculation that Japan's new political leaders will defend the 76.0 level with aggressive market intervention. Jun Azumi was appointed Finance Minister overnight after Yoshihiko Noda vacated the post to be Prime Minister earlier this week. Azumi is the seventh Finance Minister in the past three years, only further supporting Moody's concerns with Japanese political continuity.
The Commodity Currencies are all lower this morning on waning market risk appetite and falling commodity prices. Oil dropped to $86/bbl, copper was down to $409/lb, but gold soared to $1875/oz in a flight to safety. The CAD came under early pressure on the falling price of oil, Canada's main export, and on the disappointing jobs report out of the US, Canada's main export market. The AUD is lower heading into the weekend, but looks to secure its third weekly gain in a row as investors pair bets that the RBA will cut interest rates. Similarly, the NZD is lower, but is still higher for the week as the New Zealand economy continues to outperform many of its G10 counterparts. The ZAR was the second biggest looser against the dollar, behind only the BRL, as speculation increases that the RBSA will lower interest rates sooner rather than later.
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This market summary is prepared by Union Bank's Global FX Department for the general information of its customers. It is based on the most accurate information currently available, but should not be considered investment advice or a guarantee of future exchange rates or trends..