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Bye-Bye Dollar!
By Mike Conlon | August 6, 2010
This morning’s much anticipated Non Farm Payrolls report disappointed the market which sent the US dollar careening lower. While the unemployment rate held steady at 9.5%, this is probably more of a function of discouraged workers leaving the workforce. For the month of July, the US economy lost 131K jobs, nearly twice the expectation of a 65K loss.
In addition, the revisions to last month’s data came in nearly twice as bad as reported in what is becoming a familiar pattern. But the US isn’t the only country with bad employment figures today.
In Canada, the unemployment rate rose .1% to 8% as the Canadian economy lost 9.3K jobs, which is the first loss in 2010.
This report sent equity index futures and commodities lower, as well as the US dollar. Under a “normal” risk-aversion scenario, one might expect Dollar strength. However, there may be a “silver lining” in this jobs report, as the creation of private sector jobs came in higher.
So what started out as risk aversion, may be flipping around to risk appetite due to Dollar weakness.
In the forex market:
Aussie (AUD): The Aussie is actually higher after the initial downturn due to risk aversion, but now Dollar weakness is driving the market. (click chart to enlarge)
Kiwi (NZD): The Kiwi is taking back some of yesterday’s losses after their bad employment figures. Money that flowed from the Kiwi to the Loonie is slowly making its way back. (click chart to enlarge)
Loonie (CAD): The Loonie is the biggest loser this morning as they lost jobs last month for the first time all year. As seen in the above chart, the Loonie benefited yesterday from Kiwi weakness, but is now giving it all back as the situation looks weaker in North America. Adding to Loonie weakness is lower oil prices, though it is rebounding as I write.
Euro (EUR): The Euro started the morning session somewhat weaker but quickly grabbed a bid on the NFP report and is now higher. German industrial production figures came in lower than expected, but that news quickly took a back seat to Dollar weakness.
Pound (GBP): The pound is trading much like the Euro this morning after the UK reported their own weaker industrial production figures.
Dollar (USD): If it weren’t for the Loonie, the Dollar would be the worst performer this morning. Keep in mind that as the US economy weakens, so will the Canadian economy as the US is the largest importer of Canadian goods and services. NFP data was disappointing, but the silver lining I mentioned above could provide hope.
Yen (JPY): The Yen is the strongest pair today as risk aversion and Dollar weakness is driving the markets. USD/JPY is approaching the 85 “line in the sand” level—the place most think will encourage intervention.
As you can tell, the jobs reports in the US and around the globe are important drivers of economic growth and the picture is beginning to look more bleak as uncertainty over government decisions has induced hesitancy.
Until we adopt pro-business policies here in the US, it’s going to get worse. Just as the Treasury Secretary “predicted” the other day. This is akin to jumping off a building and stating, “this might hurt”.
However, there is still some good economic news around the globe, and in the end, the fiscally responsible will be rewarded. If the US doesn’t want to be the recipient of it, so be it.
Thankfully, the forex market allows me to move money quickly to those regions that deserve it!
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