NFP Quick Analysis: Dollar buy opportunity? Tepid dollar reaction to sub-million job gain seems wrong

  • The US economy gained an impressive 916,000 jobs in March.
  • Real expectations were probably even higher after the ISM data.
  • America's accelerated growth path will likely continue boosting the dollar.

It is all about expectations – with headlines such as "the highest since 1983" shaping estimates and the market reaction. The US economy gained no fewer than 916,000 jobs in March, the highest since October. The Unemployment Rate dropped to 6% amid a participation rate of 61.5%. 

The US dollar is only marginally higher. Why?

While the economic calendar pointed to an increase of 647,000 positions, real estimates were probably higher due to Thursday's ISM Manufacturing Purchasing Managers' Index which came out at 64.7 – a 37-year peak. That is why the dollar is on the back foot in the immediate after, and low liquidity on Good Friday is also to blame. 

Nevertheless, even if President Joe Biden's infrastructure plan is delayed and watered down in Congress – and despite rising covid cases – the US is clearly on the right track. Returning to pre-pandemic employment is now within investors' sights. 

What does that mean for the dollar? The greenback heavily depends on what the Federal Reserve does, which in turn, is eyeing the labor markets. The world's most powerful central bank may dismiss potential inflation as temporary and focus on millions of Americans who remain out of work.

However, when the pool of the unemployed shrinks rapidly – and it has more money from the stimulus and from work in its pockets – prices may begin rising. Markets turn to run ahead of the Fed, and may push rate expectations and the dollar higher shortly. 

What about diminishing safe-haven flows? When the US economy expands, it tends to carry the entire world with it, and investors often seek riskier assets beyond America's shores. That results in a weaker dollar. However, the current upswing in the world's largest economy may be more significant amid vaccines and stimulus, pushing such a greenback retreat further to the future.

Moreover, revisions to previous months added 156,000 additional jobs, pushing the total above the one million mark. That could help convince investors to buy the greenback. 

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