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US Dollar May Join Yen on the Offensive as Market Mood Sours

US Dollar May Join Yen on the Offensive as Market Mood Sours

Ilya Spivak,
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TALKING POINTS – YEN, US DOLLAR, STOCKS, FOMC, AUSSIE DOLLAR, POUND, BREXIT

  • Aussie Dollar upswing following September jobs data unlikely to last
  • Japanese Yen aims higher as S&P 500 futures point to risk aversion
  • US Dollar may rise as “Powell put” hopes fade after FOMC minutes

The Australian Dollar narrowly outperformed in Asia Pacific trade after September’s labor-market data showed the unemployment rate unexpectedly fell to 5 percent, the lowest since April 2012. The currency rose alongside local bond yields, suggesting markets interpreted the outcome as supportive for RBA interest rate hike prospects.

That seems unlikely. Participation dropped to a one-year low of 65.4 percent in September, suggesting that the lower jobless rate reflected an exodus from the labor force rather than a pickup in hiring. That seems hardly supportive and probably doesn’t speak to upward pressure on inflation that would be associated with tightening employment conditions. With that in mind, the Aussie’s uptick might prove to be fleeting.

The anti-risk Japanese Yen likewise rose as regional stocks followed Wall Street downward. The British Pound suffered amid worries that another Brexit deal pitch by UK Prime Minister Theresa May, this time at the EU leaders’ summit, has fizzledfruitlessly. Sideline reports hinted that she spoke only briefly and offered no substantively new proposals. The Canadian Dollar fell with crude oil prices.

YEN AIMS TO EXTEND GAINS, US DOLLAR MAY FOLLOW SUIT

Looking ahead, bellwether S&P 500 futures are pointing sharply lower, hinting that the risk-off mood is likely to prevail in the hours ahead. That seems likely to keep the Yen on offense. The US Dollar may also rise after minutes from September’s FOMC meeting poured cold water on hopes for a so-called “Powell put”, which seemed to derail its ability to capitalize on last week’s market rout.

While US central bank officials worried aloud about potential risks linked to leveraged loans and to a stronger currency, they nonetheless unanimously concluded that gradual policy tightening remains the best course of action. Some policymakers even suggested that rates may need to rise above their “long-run” level, implying that financial conditions may become more restrictive than markets have anticipated.

See our forecasts for currencies, commodities and equities to learn what will drive prices in Q4!

ASIA PACIFIC TRADING SESSION

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EUROPEAN TRADING SESSION

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** All times listed in GMT. See the full economic calendar here.

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--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivak on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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