No one was expecting a decline in the Canadian unemployment rate to 8.5%, but the addition of 79,100 jobs in what was a remarkably quiet European session set the stage for the key U.S. reading at 8:30am ET. The huge addition by Canadian employers is absolutely out of the blue as manufacturers, finance companies and educators all boosted their workforces. The Canadian dollar surged to 95.43 from 94.91 U.S. cents on Thursday and in doing so created jitters over the markets suddenly looking for better news from the U.S. labor market. Sterling and the Australian units both jumped after the reading and the euro is winding up for a possible move higher having found support at $1.5050. In an overnight interview with Bloomberg news, ECB President Trichet once again expressed the desire to see a stronger dollar. Whether this was on behalf of the U.S. or not, we didn't hear!
U.S. dollar -The dollar is already heading for a 16-month low against the euro heading into Friday's key non-farm payroll report from which the consensus estimate is for the loss of 125,000 jobs, which underscores the recovery. In terms of response to today's data, a positive surprise a la Canadian report should be dollar-negative and equity market positive. We know that the Fed isn't likely to move on rates for some time and while a positive reading would likely unseat more treasury bond bulls sending yields higher, the report shouldn't really send out danger signals for the onset of a monetary tightening anytime soon.
Japanese yen - The yen had a big weekly fall and continued to weaken against the dollar in overnight trade. The reduction of fear over losses relating to Dubai World and the earlier actions out of the Bank of Japan have taken the gloss off the yen over the course of the week and leaves the dollar buying ¥88.40 today. Against the European currency the yen is also lower where one euro buys ¥133.23.
Euro - What to make of the ECB's Thursday comments and actions? When all said and done, it appears that the European Central Bank is trying hard to tiptoe across a minefield in terms of trying to avoid setting off expectations over monetary tightening. The growing sensation that the ECB is heading towards such a point has taken over the reins in the recent several sessions and away from an overall theme of ongoing dollar weakness. This, in my opinion, leaves the euro susceptible to becoming unseated more than ever as and when officials put to either an extended period of easy policy or that inflationary pressure doesn't yet command tighter policy.
Indeed Thursday's revision to growth and consumer price projections has the CPI at 1.3% and 1.4% over the next couple of years and so comfortably beneath the 2% goal. That begs the question why we're even discussing rate hikes in the first place. But to counter that issue, we have heard from the ECB officials that they are concerned by excess liquidity driving asset price bubbles in the future. The German Bundesbank's ECB committee member, Hans Weber told German television last night that there is no need to send a signal on interest rates at the moment.
This comment really should sum up all the market dissection about what the ECB is doing as it moves away from a fixed rate on its final tender of one-year money. The bottom line is that it simply wants borrowers to pay the appropriate market rate.
British pound - Apart from news that two major British lenders are struggling to get enough credit out to borrowers, there is little news driving the pound ahead of the U.S. jobs report. The pound added against the dollar and rose to $1.6656. The euro today is lower and buys 90.46 pennies.
Aussie dollar - The Aussie unit is holding up remarkably well in light of a slide in the price of gold today. Once again the price action is relatively muted so far, but the Aussie has edged higher to buy 92.64 U.S. cents. The Aussie continues to rebound from last week's Dubai drama, which at the time generated fears for the global recovery.
Canadian dollar -Friday's employment reading was due to show the creation of 15,000 jobs but in the event the economy added five times that amount. The rate of unemployment declined by one-tenth to 8.5% as an approximate equal number of both full and part-time jobs was added in November. The fact that full-time employment rose by 38,600 or easily more than twice what had been expected overall is an unambiguous sign that the recovery is heading for sustainable recovery. This ought to be a huge positive for the Canadian dollar into the end of the year. While it invites the central bank to continually bash speculators at least verbally for piling into the unit, it does undermine the theory that a high local dollar serves to scupper recovery.