I can never get enough of these sorts of articles:
"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:
To summarise:
- Positive US jobs numbers raise the USD against other currencies.
- Negative US jobs numbers raise the USD against other currencies.
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.
Posted by: MattM | July 02, 2009 at 01:25 PM
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.
Posted by: David | July 02, 2009 at 02:41 PM
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.
Posted by: Stephen Gordon | July 02, 2009 at 02:51 PM
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.
Posted by: Phillip Huggan | July 02, 2009 at 03:49 PM
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.
Posted by: Kosta | July 02, 2009 at 11:33 PM
Good suggestion Stephen.
Posted by: David | July 03, 2009 at 04:30 AM
In other news, reporters attempt to derive meaning from intra-day market movements, and fail miserably. As usual.
Posted by: Neil | July 07, 2009 at 08:23 PM