Currency markets unmoved by equity volatility
It is telling that currency markets were, by and large, unmoved by the capitulation of Wall Street stocks overnight. Previous falls typically provoking a rush into haven US dollars, a move notably absent overnight with the dollar index only rising 0.14%.
EUR/USD survived a test of 1.1800 overnight, despite more grumbling from ECB officials about the rise of the single currency. It closed almost unchanged at 1.1850. Other pro-cyclicals fared worse, with GBP falling 0.55%, and AUD and NZD both lower by 0.85%. The more defensive JPY and CHF though were almost unchanged in overnight trading.
Asian currencies gave ground only grudgingly, CNY, SGD, THB and MYR falling only 0.20% versus the greenback. In Asia today, that trend has continued, with modest losses against the US dollar.
The price action in the currency markets, along with the relative resilience of Asian equities this morning, strongly suggests that last night’s fall on Wall Street was a Wall Street-centric event, and not a structural turn in sentiment. The fundamentals in the longer-term for a much weaker US dollar remain firmly intact. In the near term, currency markets appear content to range as they await the US Non-Farm Payrolls this evening.
Will the payrolls release, a proven market-mover, boost the sagging US dollar? The estimate for August stands at 1.375 million jobs created. There is cause for optimism ahead of the release, as US Initial Jobless Claims dropped to 886 thousand last week, better than the estimate of 955 thousand. However, there is some nervousness that the official nonfarm payrolls report could follow the ADP payrolls release earlier this week. That release came in at 428 thousand, an improvement over the July figure, but way short of the estimate of 1.25 million. If the official payroll report also misses the estimate by a country mile, it could sour investors on the US dollar.
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