Originally posted at forexfactory on August 9, 2010
Originally Posted by rattyo
What confuses me slightly with the “risk aversion” NFP came out worse than expected US economy is not doing well so that means bad news for the rest of the World so why dont traders sell of risky currencies and buy the dollar?
There are times when a “risk aversion” NFP signals weak global growth and you get commodity currencies selling off and the dollar safe haven bid.
Sometimes the market begins to price in the fact that the global economy will continue to grow, just not as fast as it expected, but still no double dip recession/no global financial crisis. In this case the safe haven bid of the dollar diminishes and the currency market starts to focus on interest rate outlook differentials.
So in the past a weak NFP may have gotten the market all scared about another crisis, but in the current market environment a weak NFP means just a weak U.S. economy, meaning the FED is nowhere near raising interest rates, there are even rumours of more Quantitative easing coming out of the FED which are hurting the dollar too.
Now it is possible that at some point in the future the market begins to get scared of global growth and double dip recession jitters and the market will need to reprice itself for that scenario. But currently that is not the case. But this can change on a dime.