Of the major currencies, the commodity dollars dominated the forex markets today as the Australian dollar, New Zealand dollar, and Canadian dollar all rose versus the low-yielding Japanese yen, as well as the US dollar.
We’ve seen demand for carry trades pick up a bit as volatility cools down, as evidenced by the drop in the CBOE’s VIX index to 56.1 from 63.68 on Thursday and a closing record of 80.06 on October 27. Nevertheless, this index remains extremely high in a historical context, so caution should be had when it comes to buying carry trades and selling the Japanese yen. Focusing on the data on hand, the Canadian net employment change unexpectedly rose by 9.5K, as forecasts called for -10K. The Canadian dollar immediately jumped on the positive change, as it suggests that Canadian domestic demand will help the nation survive the global economic slowdown.
Looking at the Japanese yen in the long term, I think there’s still quite a bit of bullish potential. Keeping the inverse correlation between the US stock markets and Japanese yen in mind, we need to consider that while many governments have taken active steps to try to stabilize the financial markets, a global economic slowdown is bound to have a negative impact on corporate earnings going forward. As these figures are released, equity markets could fall even lower and take forex carry trades down with them. While I wouldn’t be surprised to see a bounce in these carry trades in coming weeks, the trend remains bearish and should ultimately continue to benefit the low-yielding Japanese yen.
Related Article: Euro / Yen Range and Eventual Breakout Trades Check out Daily Fundamentals in its entirety for analysis and outlooks on the US dollar, euro, British pound, Japanese yen, and the commodity dollars.