The non-farm payroll figures for August have been very disappointing. A softer USD faded a bit after the release as some of the weakness may have been incorporated into the pie. Moving forward, economists at TD Securities believe that the USD could start to stagnate.
USD will underperform AUD and NZD
“Payroll increased 235,000, disappointing consensus expectations. The reviews add 134,000. Unemployment fell to 5.2% from 5.4%, with an increase of 509,000 jobs in household surveys. Average hourly earnings were solid: + 0.6% MoM; the year-on-year rate rose to 4.3% from 4.1% ”.
“We think there may be more bidirectional risk around the USD than the markets appreciate. Unless the Fed turns the tune upside down, which is highly unlikely, we believe the dollar’s decline will be limited to the post-June lows of the Fed range. “
“We believe that currencies that have very obvious strong growth and more immediate policy profiles are more likely to outperform the dollar. Here, the NZD fits that bill. The AUD, on the other hand, suffers from a weakening in China’s history, but the RBA seems happy to make progress towards tapering and we are likely to have weathered the worst on the macro front. As such, we think the markets can try to bet that the RBA could be the next RBNZ. “
“We would expect the EUR / USD to find strong resistance at 1.1909 ahead of the ECB meeting (1.1975 if not holding). What will make it challenging for the EUR to sustain gains is that the real US performance backdrop should continue to diverge from the rest of Europe. “
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