December 03, 2021
USD/JPY: The dollar strengthened against the Japanese yen as the dollar stabilized, helped by a rebound in benchmark Treasury yields from more than two-month lows. The 10-year Treasury yield fell to a two-month low of 1.4020% on Wednesday before rising to 1.4409% in Asian trading on Thursday. That rise in yields helped the dollar stabilize after its recent decline. Investors were waiting for clues about the threat posed by the Omicron coronavirus variant and the pace at which the Federal Reserve would roll back its monetary stimulus. However, the market keeps cautious ahead of the US Nonfarm Payrolls (NFP) data in November.
USD/CAD: The Canadian dollar fell against the U.S. dollar as investors assessed the impact of the Omicron variant on the global economy and awaited data on domestic markets. The price of oil, one of Canada’s main export commodities, rebounded from some recent losses as OPEC+ stuck to its policy of gradual output increase. One reason why the dollar may have ignored the strong data is because it broadly fits with the narrative of US economic/labor market strength being painted by the Fed. For another, it’s official US jobs report day today (the November report), so it’s not surprising to see FX markets enter wait-and-see mode. A few Fed members spoke, though none added anything beyond Powell’s hawkish message from earlier in the week.
XAU/USD: Gold recovered a bit after a 1% drop to a one-month low on Thursday, as investors latched on to signs of a seemingly hawkish tilt in U.S. monetary policy that could rein in rising consumer prices in the future. But the idea that the Fed is closer to a rate hike is dampening the demand for the non-yielding inflation hedge that is the yellow metal. Strong jobs today’s report could be the nail in the coffin for gold and support the greenback higher in anticipation of a faster rate of tapering from the Fed. So today’s US employment data and PMI numbers will be important for near-term direction as the Fed policymakers slip into the no-talk periods from this Saturday.