Commodity Dollars Slip as Risk Appetite Wanes, Canadian Unemployment Rate Hits 3-Year High

The commodity currencies - which include the Canadian dollar, New Zealand dollar, and Australian dollar – all fell back on Friday on a variety of factors. Waning risk appetite sapped demand for carry trades, which hurt commodities like oil and higher-yielding currencies, while benefiting lower-yielding currencies, such as the Japanese yen and US dollar. Disappointing data certainly did not help to prop the Canadian dollar higher, as the Canadian economy lost 34,400 workers during December after a loss of 70,600 workers in November. Furthermore, the unemployment rate jumped more than expected to a 3-year high of 6.6 percent from 6.3 percent, suggesting that domestic demand, and thus expansion, is bound to slow further.

Looking ahead to next week, most of the event risk will be contained to the US dollar and euro, but on January 14, the Australian unemployment rate is anticipated to pick up to 4.5 percent from 4.4 percent while the net employment change is forecasted to fall negative for the second straight month by 20,000. The latter report tends to have a greater impact on the Aussie since the figure rarely meets expectations and can lead to volatile short-term price action for the Australian dollar immediately following the news at 19:30 EDT. The other important thing to watch is the status of risk, as an increase in market-wide volatility could send the commodity bloc diving lower.

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