v US Nonfarm Payrolls register better than expected at +227K; unemployment remains steady at 8.3%;
v EUR falls after rollover of Greek debt may trigger credit default swaps;
v JPY falls to nine-month low against the USD on waning risk aversion and as Japanese officials signal they may ease monetary policy further to support the struggling economy.
The USD is stronger this morning against nearly all of its counterparts other than the CAD and MXN. The move higher is being supported by not only better than expected jobs data here in the US, but also renewed fears that Europe's debt woes will not be contained to Greece. The much awaited nonfarm payrolls report surprised to the upside this morning, showing that the economy added 227K versus the 210K expected. However, after last month's upwardly revised reading of +284K, this morning's number was not enough to move the unemployment rate lower, which came in flat at 8.3%. The most recent reading of the trade balance also surprised to the upside with the deficit widening to the largest since October 2008 as more people working translates into higher consumer spending. Meanwhile, the export of capital goods and automobiles climbed to a record as US manufacturing remains one of the bright spots of the economic recovery. The trade gap with Europe dropped to $8.5B from $9.6B as both exports and imports with the region fell by more than 7%, but the gap with China widened to $26B as demand for Chinese imports climbed. Today's data is generally supportive of the dollar as it underscores that the US is weathering the European downturn surprisingly well. While the immediate reaction to Greece securing its second round of financial aid could see the dollar remain range-bound in the near term, the longer term trend for a stronger dollar remains intact.
The EUR edged lower this morning, erasing yesterday's gains after investors focus on Greece quickly shifts to elsewhere within the Eurozone. Initial reports showed that the Greek government was able secure a 95.7% participation rate from its private investors agreeing to rollover Greek bonds while accepting a significant haircut. However, the government invoked collective action clauses, essentially forcing participants to accept the losses, which in turn will certainly prompt a review by ISDA to determine if credit default swaps will be triggered. While most investors may already be positioned for such a credit event, and even a Greek exit from the EUR, with the EU still not agreed on the strength of the regions financial firewall going forward, the risks of contagion have been ratcheted higher. Portugal appears to be the next point of concern, but investors may also begin to again question the sustainability of the debt situation in Spain and Italy in the coming weeks.
The GBP is sharply lower this morning as it heads towards a weekly loss against the USD after Greece forced losses onto private investors. Meanwhile, British industrial production fell by 0.4%, erasing the previous month's gains. With the majority of British manufactured goods headed to mainland Europe, any further signs of a slowing Eurozone economy could weigh heavily on the sterling as the British economy teeters on the edge of recession.
The JPY slipped to a nine-month low against the USD as gains in Asian equities sapped demand for the yen's relative safety and on speculation that the BoJ may ease policy further. Finance Minister Jun Azumi said he expects the BoJ to take appropriate steps to support the struggling Japanese economy. With improving data out of the US suggesting that the Fed will not pursue a third round of quantitative easing, and with the ECB holding steady on policy at their meeting earlier this week, an accommodative BoJ will likely weigh on the yen going forward.
The Commodity Currencies are mixed this morning with both the CAD and MXN gaining while the AUD and NZD fall despite higher raw good prices. Oil gained to $108.50/bbl, gold pushed back above $1700/oz and copper climbed to $385/lb. The CAD gained on the resurgent price of oil, Canada's main export, and after the better-than-expected employment data out of the US, Canada's primary trading partner. Similarly, the MXN is higher, supported by the positive data out of its Northern neighbor with a widening US trade deficit suggesting that an increase in US imports will support the Mexican economy. Meanwhile, the AUD and NZD are both headed for a weekly decline. The AUD came under pressure after the nation's trade balance unexpectedly turned negative as demand for Australian exports from China and other ASEAN nations eased. The NZD is headed for its worst five-day drop in more than two months against the USD and JPY after RBNZ governor Alan Bollard indicated that an interest rate cut is a possibility if currency strength shows signs of undermining economic growth.
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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.