What Currency to Buy if Non-Farm Payrolls are Strong?

Barclay’s argues that if non-farm payrolls surprise to the upside, the Canadian dollar will be the best performer.

How does an investor position for such an upside surprise? The temptation is to be long the USD against a currency with a high sensitivity to US interest rates such as the JPY. However, with the Fed having already stated that it would need plenty of persuading to do anything on monetary policy, USD gains may be somewhat limited. On the other hand, strong US numbers would be good for those economies around the US whose central banks might be more willing to tighten monetary policy. Canada’s economic linkages with the US and the US’s importance in the Bank of Canada’s monetary policy decision making process (as the BoC has reminded us time and time again in its statements) make a long CAD trade attractive from this standpoint. Furthermore, an historical study of G10 currency performance following payroll surprises shows that the CAD has tended to outperform other G10 currencies on upside surprises to NFP (Figure 4).

About Kathy Lien 236 Articles

Kathy Lien is an Internationally Published Author and Chief Strategist of DailyFX.com, one of the world’s most popular online websites for currency research. Her trading books include the highly acclaimed, Day Trading the Currency Market: Technical and Fundamental Strategies to Profit form Market Swings (2005, Wiley); High Probability Trading Setups for the Currency Market E-Book (2006, Investopedia); and Millionaire Traders: How Everyday People Are Beating Wall Street at Its Own Game (2007, Wiley). As Chief Currency Strategist at FXCM, Kathy is responsible for providing research and analysis for DailyFX, the research arm of FXCM. She also co-edits the BK Forex Advisor, an Investopedia.com Premium Service with Boris Schlossberg – one of the few investment advisory letters focusing strictly on the 2 Trillion/day FX market.

Kathy is also one of the authors of Investopedia’s Forex Education section and has written for Tradingmarkets.com, the Asia Times Online, Stocks & Commodities Magazine, MarketWatch, ActiveTrader Magazine, Currency Trader, Futures Magazine and SFO. She is frequently quoted by Bloomberg, Reuters, the Wall street Journal, and the International Herald Tribune and has appeared on CNN, CNBC, CBS and Bloomberg Radio. She has also hosted trader chats on EliteTrader, eSignal and FXStreet, sharing her expertise in both technical and fundamental analysis.

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