The US dollar dropped on Monday, suffering its biggest fall in six weeks in the wake of disappointing US jobs data, while the Australian dollar soared on the back of strong export numbers from China. The euro charged as high as $1.4533, from $1.4414 late in New York on Friday, with stop losses triggered around $1.4480. It then pierced the $1.4500 barrier after St. Louis Federal Reserve President James Bullard said US interest rates may remain low quite some time.
Resistance is now seen around $1.4570 and a break of that would suggest a gradual recovery towards $1.4800, say traders. "Expectations that the Federal Reserve will keep rates on hold for the foreseeable future, encouraged by Friday's weak employment report have held the dollar down," said Joseph Capurso strategist at Commonwealth Bank. The dollar index was down 0.69 percent at 76.938, having risen to as high as 78.187 on Friday. Latest data from the Commodity Futures Trading Commission showed speculators cut long positions in the US dollar in the week to January 5, and that trend is likely to pick up, traders say.
Trading conditions were thin with Tokyo shut for a holiday, encouraging some players to trigger stop-loss selling of the US currency. Traders expect the greenback to stay on the defensive as speculators cut long positions in the US dollar following the US jobs report.
Data on Friday showed US employers cut 85,000 jobs last month. November payrolls, however, were revised to show the economy actually added 4,000 jobs. Interest rate futures pared expectations the Fed will raise benchmark short-term rates any time soon. July futures contract implied a 22 percent chance of a rate hike by mid-2010, down from around 40 percent before the jobs data.
EARNINGS THE NEXT LITMUS TEST The US dollar's next litmus test is expected to come from US earnings season which kicks off in earnest this week, US retail sales, industrial production and inflation data. "The new year is beginning with a gradual unwind of December's dollar rally, as the notion of early Fed tightening is put to rest," J.P. Morgan said in a report. "Ahead of earnings season, add to US dollar shorts versus commodity currencies and also buy yen crosses."
The European Central Bank will also meet on Thursday and is largely expected to keep rates unchanged. Still, jitters about more downgrades in the region could keep a leash on the euro. The Financial Times reported on Monday that Portugal has been warned about a threat to its ratings.
That is likely to compound worries already caused by Greece's credit battle and Iceland's row with the Netherlands and Britain over its banking collapse. The Australian dollar rallied to a 26-month high versus the euro, rising to as high as 0.6442 euros. The Aussie also struck a fresh five-week high of $0.9318 buoyed by strong Chinese export numbers.
The Aussie was also bolstered by a rise in gold prices. Spot gold rose to a five-week high early on Monday. Against the yen, the Aussie was at a 15-month high of 85.92 yen with sell orders at around 86.10 yen levels, traders said. The yen was, however, firmer on the dollar, rising to 92.22, from 92.68 yen late in New York on Friday.