Global Themes

Market aversion to risk remained elevated but ebbed a little Tuesday, helping the U.S. dollar stabilize against the euro and yen. Markets remain frightful over the underlying health of the world economy and what big ticket data from China later this week would reveal. America’s currency has weathered the latest market turmoil in mixed fashion, losing ground to safer rivals from Japan and Switzerland but has outperformed counterparts with the closest links to global growth like the Aussie and kiwi dollars, and Canada’s loonie which crashed to fresh 11-year lows. The longer the market frets over global growth the longer it could delay a Federal Reserve interest rate hike which is the big negative in the current climate for the buck. America’s monthly jobs report Friday should help set the dollar’s tone in the early stages of the fourth quarter. The forecast calls for another month of robust hiring in excess of 200,000.

EUR

The euro’s grip on a five-day high against the dollar loosened as risk aversion ebbed from elevated levels. It also didn’t help that a measure of inflation Spain, the bloc’s No. 4 economy, disappointed, adding pressure on the ECB to strengthen stimulus. The current skittish market backdrop over slowing growth in China and the risk of its weakness spreading around the world should help limit falls in the euro which tends to shine as market optimism dims and stocks tumble.

USD

The dollar index stabilized after slumping to five-day lows. The negative for the dollar in the latest round of market instability over worries about global growth is that it could keep a Fed rate hike at bay for longer. Key for the dollar’s coming prospects will be the tone of China PMIs on Thursday and America’s employment report Friday. Any disappointing data from China might not be enough to overshadow another positive U.S. jobs report which would spell more uncertainty and weakness for the dollar over the short run.

AUD

The Aussie dollar could be days away from notching new six-year lows against the dollar should the latest market turmoil have legs and should China on Thursday release another batch of subdued data. The Aussie dollar currently is a penny away from the multiyear lows hit earlier this month so fantastic levels for the AUD buyer.

GBP

Calling all GBP buyers: the pound continued to hover near its weakest in five months! Fears that a slowing world economy could push harder on Britain’s economic brakes continued to weigh on sterling. Good news on a gauge of U.K. retail spending offered little support to sterling. Beware GBP buyers: your most affordable market since early May could be hours away from dissipating should remarks today at 3:15 p.m. ET from the Bank of England governor sound hawkish on the outlook for U.K. interest rates.

CAD

Canada’s dollar sank to new 11-year lows as worries flared over global growth and wholesale inflation north of the border tipped back below zero. Producer prices fell 0.4% annually in August compared to a 0.1% increase in July. Subdued inflation keeps the specter of stronger central bank stimulus, like a rate cut, on the table, weighing on the loonie.