US Dollar May Fall Further as Fed-Speak Compounds Payrolls Fallout

The US Dollar may see deeper losses as dovish Fed-speak weighs against rate hike expectations, compounding fallout from Friday’s payrolls data.

Talking Points:

• Aussie Dollar Gains Alongside Bond Yields, Yen Higher Amid Risk Aversion

• Dovish Fed-Speak May Undermine Rate Hike Outlook, Pressure US Dollar

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

The Australian Dollar outperformed in overnight trade, rising as much as 0.5 percent on average against its major currency counterparts. The move tracked an advance in front-end Australian bond yields, pointing to a firming RBA monetary policy outlook as the catalyst behind upside momentum. We noted in our weekly outlook that the Aussie appears poised to mount a recovery on shifting rate expectations.

The Japanese Yen likewise advanced as stocks declined in Asian trade, triggering liquidation of carry trades funded in the perennially low-yielding currency. Regional shares followed Wall Street lower in the aftermath of Friday’s US Employment report. While the headline payrolls reading narrowly topped analysts’ estimates, the month-to-month slowdown in job creation proved larger than forecast (101k vs. 81k expected) and wages fell.

Looking ahead, a quiet economic data docket is likely to put “Fed-speak” in the spotlight, with comments from the President of the US central bank’s Atlanta branch Dennis Lockhart due to cross the wires. Speaking in an interview with Bloomberg in the wake of Friday’s jobs data, Lockhart said he prefers the risk of being “a little bit late” on tightening and envisions the rate liftoff at midyear or later. A similarly dovish tone this time around in the absence of other catalysts may apply downward pressure on the US Dollar.