Weak risk mood underpins USD – Scotiabank

The US Dollar (USD) remains amid firm weak risk appetite but the JPY is outperforming on the session, reflecting a ratcheting up of intervention rhetoric as Finance Minister Katayama warned of ‘appropriate action’ being taken against disorderly FX moves. Core majors are steady to slightly softer and holding ranges for the most part while peripheral and less liquid currencies (ZAR, TWD, NOK) are reflecting the biggest losses on the day, Scotiabank’s Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD holds near recent highs on weak risk appetite

“FX volatility is a little firmer but remains low relative to the spike in equity (VIX) volatility. This week’s big event risks for markets have come and gone without resolving major uncertainties for investors. The NFP data yesterday provided something for FOMC rate hawks and doves on the face of it. But the report’s undertone was outright weak. While investors remain somewhat skeptical about Fed easing risks next month, the outcome remains, we think, finely balanced.”

“Note that updated weekly jobless claims data yesterday also revealed a new four-year high for the continuing claims series. Meanwhile, Nvidia’s earnings and bullish outlook did nothing to assuage concerns about tech sector stretch and the stock is lower again in overnight trade). The poster child for market concerns is perhaps Oracle Corp after its recent borrowing binge; 5Y CDS continue to widen sharply, reflecting a low, but nonnegligible risk of default (cumulatively 8% over five years).”

“While the DXY is a little firmer today, the index remains below the peaks that marked the highs for the dollar in August and earlier this month. Short-term price action in the DXY suggest a firm rejection of the low 100 zone yesterday but the index is reluctant to reverse at this point.”