Dollar Edges Lower; Nonfarm Payrolls Key This Week

The dollar edged lower in early European trade Monday, but remained just below last week’s highs given the on-going concerns over China’s property sector ahead of key U.S. employment data

At 3:10 AM ET (0710 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% lower at 93.995, after climbing last week to its highest level since September 2020.

USD/JPY rose 0.1% to 111.09, after climbing to a 19-month high last week, EUR/USD rose 0.1% to 1.1607, after falling to a 14-month low last week, GBP/USD rose 0.1% to 1.3563, just above a 9-month low, while the risk sensitive AUD/USD rose 0.1% to 0.7266.

The dollar has benefited from risk aversion after shares in the highly indebted China Evergrande were halted in Hong Kong, following on from the property developer missing a key interest payment for the second time last week.

This rekindled market worries about the possibility of global contagion as Evergrande is struggling to refinance over $300 billion in liabilities.

That said, the focus for most of this week will be on Friday’s nonfarm payrolls release, with a strong number likely to confirm the view that the Federal Reserve will start its asset purchase tapering before the year end, and then rate hikes starting in 2022 or early in 2023.

This labor release is expected to show continued improvement in the job market, with a forecast for 460,000 jobs to have been added in September, up from 235,000 jobs added the previous month.

“Technically the dollar looks on the verge of a significant break-out and a strong U.S. jobs report could cement that trend,” said analysts at ING, in a note.

In the week ahead, the Reserve Bank of Australia meets on Tuesday and is expected to keep policy steady, while the Reserve Bank of New Zealand is expected to hike by 25 basis points on Wednesday.