NFP preview: Could US jobs data aid dollar rebound?

The official US monthly non-farm payrolls report will be released on Friday, September 1. Due to the fact that some of the key leading indicators will be released after the NFP, it is even more difficult to predict this month's headline figure with any reasonable degree of confidence. Still, judging by the only leading indicator we have had – the ADP private sector payrolls report, which came in better than expected on Wednesday – we may see a positive rather than a negative surprise compared to the consensus forecasts.

NFP Expectations

Analysts expect US nonfarm employment to have risen by around 180,000 in August following a better-than-expected 209,000 increase the month before. The unemployment rate is seen steady at 4.3% year-over-year. Meanwhile average hourly earnings – a key measure of wage inflation – are expected to have risen by 0.2% in August following a 0.3% increase in July.

Oversold Dollar Catches Bid Ahead of NFP

As well as President Donald Trump's inability as of yet to pass through tax cuts and huge spending plans, the soft patch in US data had been among the reasons why the dollar has been out of favour for much of this year. But the trend of weaker data may come to an end, while most of the negativity may have been priced in for the dollar.

In fact, this week’s release of key US macro pointers thus far have been generally stronger than expected. The second quarter GDP, for one, came in at 3.0% quarter-over-quarter in an annualized format versus 2.7% expected and 2.6% in the initial estimate. What’s more, the August ADP employment report printed 237,000 compared to 185,000 expected, while the July reading was revised higher from 178,000 to 201,000. Most other US macro pointers, however, were far from great.

Still, following the ADP and GDP data in mid-week, the dollar finally managed to catch a bid. But it then struggled for direction in the second half of Thursday’s session when this report was written.

But after consistent falls throughout much of this year and the notable rebound in mid-week, the greenback is evidently looking undervalued to some. This is due to the fact the US Federal Reserve currently holds a more hawkish bias as it has started a rate hiking cycle, while the majority of other major central banks are still dovish (except the Bank of Canada).

So, it is now all down to Friday’s official nonfarm payrolls report. If this shows further strength in the labour market and another rise in wages then calls for a December rate rise may increase, triggering further dollar buying interest. Conversely, a very weak jobs report may have the opposite effect.

NFP Jobs Created and Potential USD Reaction

• >210,000 Strongly Bullish
• 180,000-210,000 Moderately Bullish
• 150,000-180,000 Moderately Bearish
• <150,000 Strongly Bearish

EUR/USD or USD/JPY for dollar bulls, USD/CAD for dollar bears

With the European Central Bank reportedly suggesting that a growing number of its policymakers are getting worried about the strength of the euro, and the Swiss National Bank being among the most dovish of major central banks out there, the EUR/USD and USD/CHF would be our favourite pairs to play the dollar’s potential strength against. But in the event the dollar weakens post NFP, then the USD/CAD could be for the US dollar bears to watch/trade as this pair has underperformed due to the Bank of Canada recently turning hawkish on the back of positive Canadian data and a rebound in crude oil prices.