The Japanese Yen rose while the Australian Dollar tumbled amid fears that US jobs data will encourage the Federal Reserve to reduce the size of its stimulus program.

Talking Points

Yen Gains, Aussie Dollar Sinks as Markets Position for US Jobs Data
US Dollar to Fall if Soft NFP Result Weighs on Fed QE Reduction Bets

Risk aversion gripped currency markets in overnight trade as investors positioned for May’s US Employment report (due to cross the wires at 12:30 GMT) and the possibility that it may encourage the Federal Reserve to taper the size of QE3 asset purchases. The sentiment-linked Australian Dollar and New Zealand Dollar suffered the bulk of the selloff while the Japanese Yen outperformed amid liquidation of carry traders funded in terms of the perennially low-yielding currency.

A cutback in stimulus is being interpreted as detrimental for the pace of recovery in the world’s largest economy and by extension for risk appetite at large, particularly considering the role of accommodative monetary policy in helping drive asset prices upward. Expectations suggest the US nonfarm payrolls (NFP) increased by 163,000 in May compared with 165,000 in the prior month.

A print in line with expectations would fall below 3- and 6-month trend averages – both of which now hover above the closely watched 200k/month threshold – as well as the 12-month average at 173k. That would pour cold water on calls to scale down the Fed’s easing program, boosting sentiment and weighing on the US Dollar against its leading counterparts.

The markets’ overnight performance suggests traders see a significant-enough risk of an upside surprise to pare pro-risk positions, however. Indeed, S&P 500 futures are oscillating in a choppy range ahead of the release, underscoring uncertainty across financial markets.

Capitalize on Shifts in Market Mood with the DailyFX Speculative Sentiment Index

Asia Session:

GMT

CCY

EVENT

ACT

EXP

23:30

AUD

AiG Performance of Construction Index (MAY)

35.3

–

35.2

23:50

JPY

Official Reserve Assets (MAY)

$1250.2B

–

$1258.0B

5:00

JPY

Coincident Index (APR P)

94.8

94.9

93.8

5:00

JPY

Leading Index (APR P)

99.3

98.8

98.0

Euro Session:

GMT

CCY

EVENT

EXP/ACT

IMPACT