USD to stall following horrible NFP report – TDS

August's Nonfarm Payrolls figures have badly disappointed. A softer USD was somewhat faded following the release as some of the weakness may have been baked into the cake. Going forward, economists at TD Securities think USD could begin to stall. 

USD to underperform vs. AUD and NZD

“Payrolls rose 235K, well below consensus. Revisions add 134K. Unemployment fell to 5.2% from 5.4%, with household survey employment up 509K. Average hourly earnings were strong: +0.6% MoM; the YoY pace rose to 4.3% from 4.1%.”

“We think there may be more two-way risk around the USD than the markets appreciate. Unless the Fed does an about-face on taper, which is highly unlikely, we think downside in the dollar will be contained to the post-June Fed range lows.”

“We think currencies that have very obvious firm growth and more immediate policy profiles stand a better chance at outperforming the USD. Here, the NZD fits that bill. AUD on the other hand suffers from a softening China story, but the RBA seems content on progressing to taper and we are likely past the worst on the macro front there. As such, we think markets may try to bet that the RBA could be the next RBNZ.”

“We would expect EUR/USD to find strong resistance into 1.1909 ahead of the ECB meeting (1.1975 if it fails to hold). What will make it challenging for EUR to hold onto gains is that the US real yield backdrop should continue to diverge from the rest of Europe.”