by Darrell Jobman, Editor-in-Chief TraderPlanet.com
The dollar consolidated in a 1.5450 – 1.55 range on Friday ahead of the US employment data on Friday.
The latest US non-farm payroll report recorded an employment decline of 20,000 for April after a revised 81,000 drop the previous month. Manufacturing and construction employment continued to weaken, but other sectors held steady and the underlying data was slightly firmer given that there was only a small increase in government employment for the month.
The unemployment rate registered a surprise fall to 5.0% from 5.1% previously as the labour-force survey recorded a strong increase in employment for the month.
The data was still weak, but maintained the trend seen in this week’s releases as it did not suggests an accelerated decline in the economy. There was also a stronger than expected increase in factory goods orders for March. The data will also underpin the case for the Federal Reserve to keep interest rates on hold at the next FOMC meeting which will provide some further dollar support.
There was a further decline in retail sales for March will maintain fears over the Euro-zone growth trends. The focus will tend to switch back towards the ECB next week with the latest council meeting on Thursday. The Euro will remain vulnerable to some further selling pressure if there is evidence of a less restrictive monetary policy. The dollar pushed to highs of 1.5360 against the Euro before consolidating around 1.5410.
Trading conditions were subdued in Asia with many markets closed for the Labour Day holiday. Although Japan was open, institutional flows were limited with a series of holidays next week. There was also still caution over the forthcoming US data releases, notably the monthly employment report on Friday.
Fear remained at a lower level in global markets and this limited scope for yen gains with some interest in carry trades.
Nevertheless, the dollar drifted back to around 103.70 with narrow ranges as the yen gained ground against the Euro The dollar was unable to challenge resistance levels around 105.0 even though there were gains in US equity prices.
Asian stock markets were strong on Friday with the Nikkei index at a 2-month high as risk tolerances remained higher. In this environment, there was renewed selling pressure on the Japanese currency with the US dollar strengthening to around 104.60.
The US currency strengthened further following the better than expected US payroll data and pushed to a high of 105.70 before drifting weaker again as Wall Street failed to hold initial gains.
The data should reinforce the improvement in risk aversion, but there will still be some caution over the situation as the major central banks expanded their liquidity operations to counter a dollar shortage.
The Swiss currency remained under pressure on Friday with losses to fresh 2008 lows beyond 1.63 while the franc also weakened to fresh two-month lows of 1.0605 against the dollar.
The Swiss currency was undermined by the US employment report and the improvement in risk appetite during the day.
The Swiss PMI index was stronger than expected with an increase to 56.7 in April from 55.0 the previous month. The data will ease some of the fears triggered by a sharp drop in the KOF index recorded earlier in the week and should help stem selling pressure on the franc.
The US dollar was firmer on Friday while commodity prices were generally lower which tended to put downward pressure on the Australian currency. The domestic retail sales data was stronger than expected with a 0.5% monthly increase in sales for April which will provide some near-term support to the currency.
Global risk conditions will still tend to dominate in the short term and the recovery in gold prices, allied with an improvement in risk appetite following the US payroll data, pushed the Australian dollar back to 0.9370 in New York trading.