By Omer Esiner of Travelex
The U.S. dollar held within generally narrow ranges in holiday-thinned trade overnight. With much of the world's financial markets still closed for the Easter holiday, activity remained somewhat subdued.
The greenback, however, managed to firm to a new seven-month peak against the Japanese yen. Traders sold the low-yielding yen as the winding down of the fiscal year-end flows back into Japan prompted investors to seek higher returns abroad. Friday's U.S. jobs report for March showed the net creation of 162,000 new jobs last month, which was below consensus forecasts but still the best reading of nonfarm payrolls since March 2007. Additionally, the figures included only 48,000 part-time census workers, which suggests the creation of permanent jobs was stronger than expected in March. The data indicated that the all-important job market may have turned a corner last month, a prerequisite for any monetary normalization by the
The greenback was boosted by speculation that the Fed could raise its discount rate at which it lends to banks by another 25 basis points when it meets for a regularly scheduled meeting. Fed officials last raised the discount rate in February, which the markets took as a sign that monetary officials were growing increasingly confident in the health of America's economy and financial markets.
The Japanese yen fell to a new seven-month low against the U.S. dollar and a new 18-month low against the Canadian dollar before regaining its footing as investors booked profits on its recent declines. The low-yielding yen continues to be pressured by the winding down of capital flows associated with the end of the fiscal year in March.
The yen has also been undermined by rising U.S. Treasury yields, which make dollar-funded carry trades slightly more expensive than yen-funded trades. U.S. yields have been rising as a result of increasing optimism about an economic recovery, and the sheer quantity of supply being issued by the Federal government. Rising Treasury yields should continue keep the yen pressured against most of its major rivals.
The Canadian dollar rose to a new 20-month peak against the greenback and a 30-month high against the euro overnight. The rise in crude oil to a new 18-month peak above $85 a barrel continued to support the loonie.
Additionally, the CAD continues to be supported by an improving domestic economic backdrop that has essentially brought in the timeline for Bank of Canada monetary normalization. Many see the BOC beginning to normalize lending rates as early as June, a scenario that would increase the CAD's yield appeal relative to the U.S. dollar. This week, investors will look to Canada's employment report for additional direction. Another strong jobs report on Friday would likely add to the outlook for BOC monetary normalization sooner than previously expected and add to the CAD's buoyant tone.
Omer Esiner serves as the Senior Currency Market Analyst at Travelex, Inc. a global financial institution specializing in corporate foreign exchange services and international payment solutions. In this capacity, he monitors, analyzes and interprets the economic, financial, political and technical factors that drive the movements of more than 100 currencies for Travelex. Mr. Esiner explains the currency markets' reaction to market events to clients, employees and members of the media.
You can view his daily reports, recording briefings, and quarterly reviews posted
. As an expert in foreign exchange, Mr. Esiner is quoted regularly by the financial media including The Wall Street Journal, CNN, Dow Jones Newswires, Reuters, the Nightly Business Report, National Public Radio, among others. Based in Washington, D.C., Esiner joined Travelex in February 2000. Prior to his current position, Esiner was a currency trader for several years. Mr. Esiner holds a bachelor's degree in economics from the University of Maryland, College Park. He is fluent in Turkish and proficient in Spanish.