Investors took profits on Asian equities and gold while also buying back some U.S. dollars on Friday, squaring up before the latest U.S. employment report and potentially contentious international meetings about currencies.
Bets against the U.S. dollar have grown significantly since September because of increased expectations the Federal Reserve will print money to buy debt, and that may limit the downside if the payrolls number is a lot lower than expected.
Still, if the Fed follows suit with the Bank of Japan and gets more aggressive about easing policy than the market anticipates, the cheap money trade of selling dollars and buying gold, emerging market equities and longer-term bonds will undoubtedly spread.
Japan’s Nikkei share average slipped 0.5 percent after hitting a two-month intraday high on Thursday.
The MSCI index of Asia Pacific stocks outside Japan edged 0.4 percent lower after closing at a 28-month high on Thursday. Declines were spread evenly across most sectors, though the technology sector underperformed for a second day.
In the foreign exchange market, the euro, which has benefited from dollar weakness, was largely unchanged at $1.3917 after the currency reached an eight-month high around $1.4030 on Thursday.
The rapid increase of bets on the euro means the threshold for more dollar weakness after the U.S. payrolls figure is high.
“Positioning could limit the degree of dollar downside, particularly against the euro. This likely means that the bar for a dollar-positive surprise on the upside is somewhat lower and a just above consensus outcome may not be a significant spark for volatility,” Todd Elmer, currency strategist with Citi in Singapore, said in a note.
The dollar was trading at 82.35 yen, above a 15-year low of 82.11 yen plumbed on Thursday.
The outcome of the Group of Seven rich nations meeting this weekend could influence views on when Japanese officials will intervene again to pull down the yen.
Japan’s first intervention in six years last month sparked a heated debate globally -- what some have even called a currency war -- about what governments can do to keep their currencies from strengthening against the falling dollar.
“There’s speculation that, if the G7 wants a coordinated stance to put pressure on China to raise the yuan, then it becomes more difficult for Japan to intervene,” said a dealer at a Japanese brokerage house.
Gold prices slipped in the spot market, falling 0.2 percent to $1,330.30 an ounce. The precious metal traded in a wide range on Thursday, hitting an all-time high of $1,364.60 but then ending the session around $1.332.70.
The 90-day inverse correlation between gold and the U.S. dollar is the strongest it has been all year, meaning when one falls, the other is very much likely to rise based on price action over the past three months.