USD weakens
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Markets are taking the half glass full point of view on the economy. After disappointing May job reports, a Fed rate hike was inevitably delayed. As a result, markets are soaring knowing that they will continue to have access to cheap money at least in the short term. Apart from the obvious advances in major indices following the underwhelming jobs report, the US Dollar continued falling against other major currencies, which has contributed to higher oil prices.

To be fair, it should take more than a bad month for jobs data to deliver a blow to investor confidence. However the current surge, threatens to catch short sighted investors when they are vulnerable. If job creation continues to weaken for instance, then Fed rate hikes will become a secondary factor in the decision making process of investors who are ultimately looking for increased demand for products and services.

On the other hand, if the job market shows prolonged weakness, the US Dollar will weaken further. This has the potential of driving oil prices up, while strengthening the currencies of economies that are relying on currency weakness to deliver economic recovery. Such is the case of Japan, Canada, Australia and several countries in the EU.

Rising commodity prices could be a boon for countries like Canada and Australia. However the weakening of the US Dollar can create a currency trap for those countries. If the Greenback doesn’t’ weaken enough, it could create a situation in which exports from commodities do not yield enough profits to offset weakening prospects from exports in other industries. Similarly, countries like Japan could be stuck in a situation in which rising prices for raw materials and a stronger currency, can eat away at the margins for the export of their manufactured goods.

In the meantime however, investors are taking advantage of cheap money, choosing to worry about the future another day. This presents an excellent opportunity for short term investments of many kinds, although the risk has increased. Ultimately, the only constant in such a market will be volatility driven by a high degree of uncertainty. Lets hope June employment numbers are better.

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