The greenback continued to flirt with bear market territory on Friday, with non-farm payrolls failing to inspire investor confidence the US economy is on the straight and narrow. The much anticipated US Non-farm payrolls showed the US economy lost 131,000 jobs in July - far worse than the estimated decline of 65,000. Although the headline figure reflects the shedding of 143,000 government jobs, private payrolls also undershot estimates recording 71,000 Jobs created in July against an expected gain of 83,000. Not helping the cause was a revision the June reading to show 221,000 job losses against the originally reported 125,000.

The US dollar index which measures the value of the US dollar against 6 major counterparts continued to retreat on Friday, finishing lower for the 9th consecutive week. The greenback is now flirting dangerously with bear market territory with the US dollar index dropping 9 percent from its highs two months ago.

The fortunes of the greenback are not looking great, considering its appeal as a safety-play have seemingly all but slipped away - global investors now consider the US the greater of two evils against the European economy. It’s now clear, signs of strength in European and the subsequent perceived deterioration of the US economy has mark the return of true market fundamentals for the greenback, rather than a surge to the safety of the USD in times of adversity.

Meanwhile a stronger greenback will be contingent on either signs of the recovery gathering pace or notable deterioration elsewhere which may switch the balance of risk back in favour of the US dollar. Perhaps the best indication on how investors viewed the latest payroll numbers was USD/JPY activity which took a big hit in the ensuing minutes of the release. Japanese Yen traders are now watching in anticipation for the BoJ policy meeting to take place this week which will no doubt induce another round of speculation of whether the BoJ will intervene and take steps to weaken the Japanese Yen. Whilst adversity persists in the states, the fortunes of the Yen are looking quite strong which doesn’t bode well for Japan’s hope for an export fuelled recovery. The Yen’s safe haven appeal is threatening to take the USD/JPY pair to 15 year lows (currently at 8 month lows) and its only saving grace is the threat of intervention from the BOJ.

Locally, with the RBA looking like they will sit on the interest rate sidelines for the near term, a continuance of stronger local growth indicators and a bias for further interest rate hikes in the future may act as a temporary floor on the Aussie dollar. This however doesn’t mean we are headed to parity. Friday’s move higher against the greenback was by default – this was about USD weakness not necessarily Aussie dollar strength. Although the USD’s appeal as a safety play remains cloudy we will more than likely see Aussie dollar activity continue its relationship with investor sentiment – with which we can look to US stocks as a good barometer.

This week we have a number of second tier reports being released with Home loan data, NAB business conditions and consumer confidence data from Westpac. The focal point will be employment data which is predicted to show the Australian economy created 20,000 new jobs in July against a previous 45,900. China is also set to release a host of economic figures this week including CPI, Industrial production and Retail sales which will no doubt sway sentiment into how markets perceive China’s growth outlook. At the time of writing the Aussie dollar is buying 91.75 US cents.