Greenback finds form ahead of NFP's
The U.S dollar continued its solid run overnight as investors looked to signs employment is steadily improving, amid further milestone highs from U.S equities.
The ADP employment gauge showed 198,000 new jobs added to the private sector in February, in excess of the 170,000 expected. January's growth originally reported at 192,000 was also revised to 215,000. The out-performance from the ADP report is a particular good sign ahead of Friday's official employment report and may also suggest concerns surrounding the impending budget cuts have failed to discourage U.S businesses from hiring.
The greenback is in the unique position of attracting demand in two very different types of market environments. On one hand the U.S dollar retains its safe-haven attributes which can intermittently strengthen its appeal in times of adversity, while positive economic signposts have broadly worked in the dollars favor as markets attempt to define how long the fed will maintain extraordinary levels of economic stimulus.
Should the data pulse continue to materially outpace expectations, we're likely to see intermittent bouts of greenback strength as markets continue to ponder when the Fed will begin scaling back on asset purchases.
Still, there remains a level of confidence the Fed will not suddenly scale back ultra accommodative stimulus measures. Vice chair of the Fed, Janet Yellen defended the Fed's stimulus initiatives in a speech earlier this week, noting: "I view the balance of risks as still calling for a highly accommodative monetary policy to support a stronger recovery and more rapid growth in employment." Adding, "at this stage, I do not see any that would cause me to advocate a curtailment of our purchase program."
In short, there are a series of factors at play, and while we view feedback from the top echelons of the Fed as broadly dovish, markets continue display a willingness to look further into the future. The future is of course tighter policy from the Fed, implying the scaling back of quantitative easing as the economy regains composure.
This phenomenon (of solid U.S data translating to a stronger greenback) has been broadly negative for currencies generally considered to get a leg-up in 'risk-on' environments. In particular, the kiwi and Aussie dollars recorded moderate losses, and the Euro resumed a downward trajectory below the $US130-figure.
At the time of writing the Australian dollar is buying 102.3 US cents and we judge a broad band of supportive behavior from 102 US cents and above to contain losses in the domestic session. Trade balance is coming up at 11.30 am which is expected to show a deficit widened to A$500 million in January, from a previous 427 million. Local markets will also be watching for feedback from the Bank of Japan as their two day monetary policy meeting finishes today.
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