On a day when bond yields increased, U.S. stocks ended mildly positive and the dollar strengthened against the Japanese Yen, the greenback’s weakness against other major currencies reflects the positive risk appetite in the financial markets. For example, the Australian dollar’s ability to climb to the highest level against the buck in more than a month indicates that demand for high yielding currencies remain strong. Considering the possibility of job growth returning, the optimism in the markets may not be misplaced. Based upon the leading indicators for non-farm payrolls released this morning, all signs point to an improvement in the labor market. After 23 consecutive months of job losses, positive job growth would be breath of fresh air for all. However for currency traders, Friday’s non-farm payrolls report will be the test of whether the dollar will be driven by fundamentals or risk appetite. Given the reaction to the previous NFP release, we believe that it will be the former rather than the latter.
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