NEWS / Foreign Exchange

Cautious Dollar Selling Ahead of Jobs, CAD Soars to 93.5 cents

We expect this morning??™s US labor report to show a net increase of 120K jobs in October, compared to consensus forecasts of 83k, following September??™s 110K. We expect the unemployment rate to remain steady at 4.7%. Average hourly earnings are seen down 0.3%. Our rationale for expecting a slightly higher payrolls reading is due to the 106K increase in the ADP payrolls following the 58K rise in September. While the conference board??™s job index has come in predominantly weak, the employment components of the manufacturing ISM was relatively robust despite the headline index??™s fall to 11-month lows. The deciding factor in the payrolls report could come in from further deterioration in housing related jobs, while a retreat in the creation of new government jobs in August and September could also weigh on the figure.

A rise in the unemployment rate to 4.8% will be negative for the US dollar as long as payrolls come in below 130K. An unchanged unemployment rate of 4.7% and payrolls between 90K and 130K is seen somewhat dollar neutral to negative, while a decline in the unemployment rate to 4.6% is seen dollar positive as long as payrolls come in above 130K. But traders must also gauge the stock market??™s impact on the dollar, following Thursday??™s 2.6% tumble in the Dow and S&P500.

The other sign of extensive dollar damage

The sharp unwinding in carry trades following Thursday??™s 2.6% decline in the Dow and the S&P500 has been partially reversed during Asian trade, which reflects the ongoing lack of confidence in the US dollar. Also reflecting the dollar??™s extensive weakness is gold??™s resilience above the $785 level despite sharp unwinding in high yield FX trades and +2.0% decline in equities.

Canadian dollar soars on prolonged employment gains

EURUSD rallies ahead of payrolls, but cracks seen ahead

USDJPY remains vulnerable to risk aversion

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