Dollar and Yen Gain as Investors Liquidate Risky Assets

Daily Forex Fundamentals | Written by CMS Forex | Sep 05 08 22:20 GMT |

The dollar rose against most key currencies in volatile trading Friday despite the eight straight monthly job losses and unemployment rate at a 5-year high increasing risks of a worsening US economic slowdown. The dollar and yen were supported by sell-offs in asset and commodity markets as investors liquidated risky assets. The euro fell for a seventh consecutive day as Germany's industrial production declined more than expected. Sterling dropped a seventh week against the greenback. The Australian dollar fell as commodity prices continued their declines. The Canadian dollar rose on better-than-expected employment growth in Canada. The USD/JPY touched a 7-week low on increased risk aversion as today's US employment report showed continuing weakness in the US labor market. The pair broke its 5-month uptrend but pared losses after oversold US stocks recovered earlier losses. Short-term support exists in the 106-area and resistance in the 108-area. If the 106-support is broken, the USD/JPY will likely fall to the 102-area. Financial and Economic News and Comments US & Canada US nonfarm payrolls fell a more-than-forecast 84,000 in August, an eighth straight monthly drop, data from the Labor Department showed. Revisions to June and July subtracted 58,000 jobs, resulting in a net loss of 142,000. Private payrolls dropped 101,000 in August. The weakest job categories were manufacturing (down 61,000), temps (down 37,000), and retail (down 20,000). The strongest sector was education/health (up 55,000). The unemployment rate unexpectedly surged to 6.1% in August, the highest since 2003, following July's 5.7%. Average hourly earnings increased 0.4% m/m, to $18.14 in August, and rose 3.6% y/y, both higher than expected. The average workweek was flat at 33.7 hours. Today's grim employment figures, which included a modest increase in wages, suggest the Federal Reserve will hold its target for the federal funds rate steady at 2% at its September 16 meeting and at least through the end of the year. US mortgage foreclosures accelerated to 1.19% in Q2, the fastest pace and rising above 1% for the first time in 29 years, as interest rates rose and home values dropped, the Mortgage Bankers Association said. The total inventory of homes in foreclosure reached 2.75%, almost tripling since the 5-year housing boom ended in 2005. The share of loans with one or more payments overdue rose to a seasonally adjusted 6.41% of all mortgages, an all-time high, from 6.35% in Q1. The US economy is “stagnant,” Europe is heading to a recession, and central banks will not have much room to lower interest rates amid high inflation, the US Conference Board said. “This is a period of rolling adjustments, that goes from sector to sector, that will keep the U.S. growth rate low in the 1 percent-to-2 percent range for the foreseeable future,” said Gail D. Fosler, Conference Board president. “Europe is in somewhat more peril,” Fosler added. “The tech sector is beginning to weaken and the manufacturing sector, which has really held up, is likely to begin to weaken,” she said. “The U.S. is going to be in a relatively stagnant, relatively slow growth mode for the foreseeable future.” Canada's economy added more-than-forecast 15,200 jobs in August, led by education and construction, following July's 55,200 job decline that was the biggest in 17 years, Statistics Canada reported. The unemployment rate remained at 6.1% in August. A net 30,000 jobs were added in education in August, followed by 18,500 in construction and 15,900 in accommodation and food services. August's improving employment data indicates the Canadian economy picked up steam after contracting in Q1. Canada's Ivey purchasing managers' index fell more than expected to 51.5 in August, the lowest since December, from 65.5 in July, according to a survey by the Ivey School of Business in London, Ontario. A reading above 50 indicates purchasing expansion. August's data shows Canada's business and government spending increased at a slower pace. Europe Germany's industrial production fell a more-than-forecast 1.8% m/m in July, led by a decline in demand for investment goods such as machinery, following a 0.1% m/m increase in June, the Economy Ministry said. Output of investment goods dropped 3.7% m/m and construction production fell 2.0% m/m in July. Germany's July IP declined 0.6% y/y. Overall the July IP data indicates a strong downturn in the German manufacturing industry, increasing the risk of a contraction in Germany's Q3 GDP. European Central Bank officials still maintain their hawkish comments on accelerating inflation despite euroarea increasing recessionary risks. The ECB will do “whatever needed to deliver price stability,” ECB President Jean-Claude Trichet said at a conference in Frankfurt. At the same event, Executive Board member Jürgen Stark said inflation is at “worrying levels,” while Executive Board member José Manuel González- Páramo said the inflation outlook is “a source of major concern.” Asia-Pacific Japan's capital spending excluding software fell a more-than-forecast 7.6% in Q2, a fifth consecutive decline, on surging oil and commodity prices as well as the global economic slowdown, the Ministry of Finance said. The Japanese government will use today's capital spending data to calculate revised Q2 GDP figures on September 12. Japan's foreign reserves fell $7.92 billion to $996.74 billion, below the $1 trillion mark for the first time in three months at the end of August, according to data from the Japanese Finance Ministry. AiG's performance of Australian construction index increased to 43.1 in August, a third consecutive increase since May, following 41.6 in July. A reading of 50 is a dividing line between growth and contraction. The sharpest rise in the sub-components was seen in deliveries, which rose to 54.2 in August from 41.2 in July. The employment index improved to 45.9 from July's 43.2. The activity index decreased to 40.3 from 42.2, the new orders index declined to 37.9 from 39.9, and input prices fell to 87.0 from 90.9. Overall, August's figures indicate activity in Australia's construction sector improved slightly in August but remained contracting for a sixth straight month. Hans Nilsson Capital Market Services, L.L.C. www.cmsfx.com