Following an uneventful price action in the G10 FX market overnight, the focus today turns to the September payrolls release. CACIB is calling for a 190k rise following the weaker-than-expected 173k print last month. This is slightly below consensus expectations of 201k but certainty within the margin of error given the standard deviation of 18k. Otherwise, we look for the unemployment rate to remain unchanged at 5.1% but look for a bump in average hourly earnings to 2.4% from a year earlier.
We also expect upward revisions to the August figures, owing to seasonal distributions in the release. This also impacts September to some degree as well. We suspect, in turn, the upwards revisions could show average gains for August and September above the 200k mark. This reflects steady improvement in the labour market and should bolster the Fed’s confidence that the US economy has reached full employment.
We also note this is the last NFP release before the Fed meets later this month. The uncertainty over the timing and likely pace of hikes has added to the choppy market conditions. Even so, the data suggests it typically pays to hold long USD positions into the release. In the nine payrolls releases this year we saw five “upside” surprises and four “downside” misses in payrolls yet the dollar rallied after 80% of the releases. The average rally was 0.3% after the release but this masks the asymmetry of the returns: gains on “upside” days outstripped “downside” losses by 2.5 times. This dynamic likely owes to the data dependency of Fed policy, which the recent pickup in sensitivity between the USD and data surprises supports.
All told with the market still pricing in a 2016 rate hike, the greenback still has plenty of scope to rally following the recent position squeeze.
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