I can never get enough of these sorts of articles:
Loonie weakens as jobless data spooks investors: Canada's currency weakened after a U.S. government report showed
employers cut more jobs in June than economists forecast, diminishing
prospects for the country's economic recovery.
employers cut more jobs in June than economists forecast, diminishing
prospects for the country's economic recovery.
"A worse
number is going to be bad for risk appetite," said Shaun Osborne, chief
currency strategist at TD Securities Inc. in Toronto. "The initial
reaction has been to buy the U.S. dollar" against other currencies such
as the Canadian dollar and the euro.
Very plausible, you might think. But here's the forex story from last month's US employment release:
Greenback rallies after jobs data signal recession abating: The dollar advanced the most against the euro since April and rose
to a three-week high versus the yen after a U.S. government report
showed employers cut fewer jobs last month than economists forecast.The
greenback climbed against almost all of the other major currencies as a
slower deterioration of the labour market supported bets
dollar-denominated assets will gain as the U.S. leads the global
economy out of a recession.
to a three-week high versus the yen after a U.S. government report
showed employers cut fewer jobs last month than economists forecast.The
greenback climbed against almost all of the other major currencies as a
slower deterioration of the labour market supported bets
dollar-denominated assets will gain as the U.S. leads the global
economy out of a recession.
To summarise:
- Positive US jobs numbers raise the USD against other currencies.
- Negative US jobs numbers raise the USD against other currencies.
Worthwhile Canadian Initiative 
Chris Dillow had a couple of posts about this type of reporting as one of his pet peeves, if I recall correctly (though there is an outside chance I’m confusing his posts with yours).
What he mentioned was that the headlines never actually assign a causal connection between the two. And those headlines are perfect examples:
“Loonie weakens as jobless data spooks investors”
“Greenback rallies after jobs data signal recession abating”
So technically the headline is right. Then the causal connection comes from some “expert” (expert at what? ex post facto reasoning?) that the new service quotes.
I’m a reporter myself, and this kind of reporting bugs me. But if you’re a reporter, and you have to write another story about today’s exchange rate, what do you do? You can say “The dollar fell half a cent today.” But then what? You have to write something. So reporters go out and try to find a “why.” At least these articles are careful in the language they use: “Canada’s currency weakened/The dollar advanced … after [insert explanation].” They’re implying there might be some correlation, but at least they’re not saying “[Explanation] caused the dollar to rise/fall.” That kind of reporting is what really irks me.
I challenge readers to come up with a better way to report. How do you write about changes in the exchange rate or the stock market without trying to get at causation? If you can’t speculate on causation, most newspapers probably wouldn’t have a business section.
I wouldn’t mind it if the occasional story said “Puzzling fall in CAD”. The story could then explain some broad outlines about what sort of link we might expect between US employment news and the exchange rate.
I’d guess there are four competing scenario fund managers are chewing on: Global recovery. USA recovery. Rest of world recovery minus USA. Global turmoil. #4 appears to be strong USD (flight to quality). #1 exodus from USD. #2 and #3 exchange rate volatility. I doubt anyone liked exchange rates whipping all over the place recently so maybe there is a conspiracy to maintain a trading range for now. I don’t really understand USD as a safe haven (maybe because USD has been historically just like gold so is a habit now?) so take analysis with grain of salt.
I have to agree that there’s some poor reporting involved with both (or at least one of) those stories, but on the other hand, there is a kernel of truth to both arguments.
The first story is fine and is just repeating the “flight to quality” argument (as Phillip pointed out). And this dynamic does appear to be a major player in Forex, with bad days in the stock market driving the US Dollar up (or maybe it’s the other way around (or maybe it’s something else driving both of them, like risk aversion))
The second story has the bad reporting. The “flight to quality” does work in reverse, and recovery in the US and world will lead to money leaving the USD. So then why did the good jobs number drive up the USD? It’s not because the US became a more favourable place to park one’s money, as the second article suggests. No, it was because the bond market reacted to the jobs numbers with the expectation of upcoming inflation and Treasury yields jumped. And with higher Treasury yields, the USD rose.
Good suggestion Stephen.
In other news, reporters attempt to derive meaning from intra-day market movements, and fail miserably. As usual.