USD softer, Gold makes new record high - Scotiabank

The US Dollar (USD) is tracking lower overall against the major currencies as last week's bid tone fades and traders look ahead to this week's risk events, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD eases as markets fret over shutdown and NFP risks

"US lawmakers are holding talks today to try and agree on a short-term funding deal that will avert a government shutdown. The Trump administration has indicated that thousands of government workers would be fired if the federal government does shutdown. Meanwhile, the next encounter with the key data point of the moment--the Non-Farm Payrolls report--is looming. The consensus call (currently) is for a 50k gain in jobs this month and a steady unemployment rate at 4.3%."

"Some Fed officials are concerned that the labour market is deteriorating rapidly and weak data will build the case for more aggressive rate cuts from the Fed the near-term. The JPY is outperforming among the major currencies on the session as US yields retreat from last Friday's peak. The soft USD tone has not rubbed off on the CAD and MXN, however. Both are only marginally higher on the day and are relative underperformers as a result. The weaker USD, lower US yields and shutdown risks are boosting demand for gold. Spot gold advanced to a new record above $3800."

"Broader gains in gold reflect investor anxiety about interest rates falling amid still untamed inflation and the weaker USD trend and gold's bull run may extend while those anxieties persist. Note that after a period of positively correlated price action between gold and US real yields, the relationship appears to be shifting back to negative. European stocks are mixed to slightly firmer while US equity futures are around 0.5% higher on the session. US data reports today are limited to Pending Home Sales and the Dallas Fed's Manufacturing survey. The Fed's Waller, Hammack and Bostic are speaking today. Japan releases Industrial Production and Retail Sales figures and China's PMI data are out this evening."