So, we are nearly at the stage where, in effect, you have to pay for the privilege of lending to a nation for 10 years, even though its total government debt stock is 2.5 times the size of the economy, the central bank owns one-third of it and they have grown an average of just over 1% a year over the past 5 years. Yes, it’s Japan and not for the first time in recent history one can’t help thinking what a mad financial world we currently inhabit. As I mentioned yesterday, the dollar was playing catch-up late on Wednesday, having been held up during January by the waft of risk aversion that was spreading through markets. It was also catching up with the run of data falling short of expectations in recent weeks. As such, the volatility risks for today’s US employment report are probably lower than was the case early in the week now that some of the longer-term dollar bulls have been shaken out of the market. That said, it is the day of the month when the range on the dollar index is 50% higher than non US employment report day, so it will pay to be vigilant. The headline number is seen moderating from the 292k pace of growth seen in December, with the rate steady at 5.0%, which traditionally is the rate which the Fed views as pivotal in terms of inflation risks, but less so in this new paradigm in which we reside.
Note that the Canadian jobs numbers are also seen today, which could have more policy implications for the currency than the US ones, given the greater potential for a policy move from the BoC over the coming months. The unemployment rate has been on a gradually rising trend over the past year and the economy slowing, with the market pricing a risk of easier policy later in the year. Weaker numbers would see this brought forward and also weigh on the CAD. Note that USDCAD has now unwound all of the up-move seen in January in the wake of yesterday’s dollar sell-off.