By Rosalind Mathieson
A Dow Jones Newswires Column
SINGAPORE (Dow Jones)--The U.S. dollar used to be able to rely on risk aversion to give it a lift. But that's not something that's working so well anymore as investors start to fret about the relative health of the U.S. economy.
Periodic bouts of concern in global markets about the strength of the economic recovery have helped put a floor under what is otherwise a largely one-way bet on the dollar to the downside.
That's because the dollar falls into the currency camp of a "safe haven" when sentiment is poor, alongside the Japanese yen, while higher-yielding but riskier bets like the Australian dollar tend to suffer during such times.
But that trend is increasingly looking fragile for the greenback. No longer do people obligingly rush to buy it when risk appetite ebbs.
Take the October nonfarm payrolls report of Friday. That data showed the U.S. jobless rate rising over 10.0% for the first time in 26 years. The U.S. economy lost 190,000 jobs in the month, worse than the consensus forecast of a loss of 175,000 jobs.
Ordinarily, such data should have given the U.S. dollar a lift. Indeed, the greenback did tick higher when the data came out. But it didn't last.
That's because people are looking more closely nowadays at the question of where the risk is coming from. Increasingly, the answer is the U.S. itself.
As Asia (aside from Japan) and Australasia turn the economic corner, and Europe starts to show slight improvement, the U.S. economy is lumbering along at the rear. Unless we get some sort of magical jobless recovery in the U.S., the pickup there is going to be painfully slow indeed.
The U.S. is also looking at years of hard work to dig itself some way out of its fiscal hole, at a time the Obama administration is trying to embark on a much-needed, major overhaul of the healthcare system. The Federal Reserve is likely to keep interest rates lower for longer than elsewhere, highlighting the slowness of the U.S. recovery.
The only thing really going for the U.S. dollar right now is that it has fallen a fair bit against its major counterparts in recent weeks, including the euro and Australian dollar. That might mean positioning starts to roll over and give it a hand.
Any gains though may equally be brief, especially as risk aversion isn't so much of a supportive factor anymore. At the same time, episodes of risk appetite are likely to exaggerate the dollar's decline, given the view the U.S. will be first in, but last out, of the economic downturn.
May The Force Be With You.
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