US Dollar, Yen May Rise as Commodity Currencies Fall on US Jobs Data

The US Dollar and Japanese Yen may rise while commodity-linked currencies decline as US jobs data fuels speculation on a Fed interest rate hike inSeptember.

Talking Points:

• US Dollar, Yen May Rise as Payrolls Data Fuels Fed Rate Hike Speculation

• Australian, Canadian and NZ Dollars Drop as Risk Aversion Returns in Asia

• See Economic Releases Directly on Your Charts with the DailyFX News App

Risk aversion returned in Asian trade, sinking the sentiment-linked Australian, Canadian and New Zealand Dollars while boosting the safety-geared Japanese Yen. The Euro put in a mixed performance, rising against overtly risk-anchored currencies but underperforming other anti-risk alternatives. The single currency’s ability to capitalize on carry trade liquidation was probably complicated by lingering negativity after the ECB opened the door for monetary stimulus expansion at yesterday’s policy meeting.

The erosion in market confidence likely reflects pre-positioning ahead of the much-anticipated release of Augusts’ US Employment figures. Nonfarm payrolls are expected to rise 217,000 to mark a narrow improvement over the prior month’s 215,000 increase. Traders will look to the report to gauge the likelihood of a September FOMC interest rate hike. Indeed, Fed Vice Chairman Stanley Fischer specifically fingered the data set as important in the decision process at the weekend’s Jackson Hole Symposium.

US economic news-flow has stabilized compared to consensus forecasts since late July, suggesting economists’ models may have become relatively well-tuned to realized outcomes. That hints a print close to in line with expectations is likely, which would broadly put employment growth on at the prevailing medium-term trend.

Such an outcome would suggest the real economy has remained resilient to recent financial market volatility (at least thus far), pouring cold water on hopes that the Fed will hold off on stimulus withdrawal. This bodes well for the US Dollar but seems likewise likely to trigger a risk-averse response from investors, with funding currencies standing to gain while higher yielders continue to suffer.