Dollar to Rise if US Payrolls Outperform But Sentiment Impact Unclear

The US Dollar is likely to rise if US nonfarm payrolls data outperforms but the likely impact of such an outcome on market-wide sentiment appears clouded.

Talking Points:

• Leading Survey Data Hints US Payrolls Data May Reveal Upside Surprise

• US Dollar to Rise on Upbeat Jobs Data But Risk Trends Response Unclear

• See Economic Releases Directly on Your Charts with the DailyFX News App

A European calendar peppered with second-tier releases is unlikely to generate a strong reaction from financial markets as investors look ahead to the much-anticipated US Employment report.Nonfarm payrolls are expected to register an increase of 235,000 in October, marking a bit of a slowdown following the 248,000 gain in September. The unemployment rate is seen holding steady at 5.9 percent.

Leading surveys suggest that the pace of hiring across the manufacturing and services sectors was unchanged compared with the prior month however. Furthermore, data compiled by Citigroup shows that US economic news-flow has broadly outperformed relative to consensus forecasts since August, hinting analysts are under-appreciating the recovery’s vigor. On balance, this opens the door for an upside surprise.

The surface-level response from such is likely to see the US Dollar continuing to push higher rosy labor market cues fuel speculation that the Fed may issue its first post-QE3 interest rate hike sooner than markets are expecting. The implications for risk appetite are somewhat clouded however. On one hand, a “risk-on” argument can be made on the basis that a stronger US economy is supportive for overall global growth. On the other, a “risk-off” narrative would likewise make sense considering the formative role of Fed support for sentiment-geared assets.

In the former scenario, high-yielding FX such as the Australian and New Zealand Dollars may prove best-supported while the safe-haven Japanese Yen suffers renewed selling pressure. In the latter, the inverse of this dynamic may play out. Either way, the report could prove to be something of a pace-setter for how will interpret forthcoming US news-flow now that Fed asset purchases have ended and tightening speculation can take center stage in earnest.