For lovers of volatility and short term trading opportunities the US nonfarm payrolls is the go-to macro event of the monthly calendar. Even for those with long term equity investments, it’s important to have an awareness of any changes in the labour market.
US labour data is a key part of FOMC's policy mandate and the Non-farm payroll figure is easily among the most watched of all macroeconomic data. It continues to possess the power to revive speculations on the Fed's next move and with the current back drop of monetary policy divergences we tend to see decent activity around the NFP release, not just in FX markets, but across the board.
High price volatility can therefore could lead to interesting trading opportunities.
The consensus for the March NFP is 205K, slightly less then the 12-month average of 212K.
However, the headline number has lost some of its significance. Very recently, FOMC Chair Janet Yellen warned that slack in the US labour market might be adversely misrepresented within the data, and not in a positive way. In this context, even a strong NFP read could fail to revive the Fed hawks as the expectation for the next Fed hike has been pushed back to November and investors seem too busy celebrating the cheap liquidity to reverse the current enthusiasm
Unless the jobs report shows a strong positive surprise- 250K and possibly more, then it is unlikely that the US dollar will find the support to rise and shine.
On the flip side, it’s questionable whether a weaker number, say below 200K, could further exacerbate USD weakness given that the US dollar index has already lost about 1.5% since the beginning of the week.
Despite the deterioration in Fed hike expectations, the US central bank is still the only one embarking on a rate tightening cycle, albeit tentatively.
Any softness in equity markets, or any potential global shocks may well result in some safe haven flow which will in turn support the dollar. Thus the recent sell-off in the USD may have gone too far, in which case, even a soft read could see a limited downside in the US dollar.
The US jobs market recorded a mixed performance since the beginning of the year. In January, the NFP surprised the market by beating expectations by a solid 44%. In February, the data missed the market estimates by a significant 20%. Last month, the US economy managed to add 242’000 nonfarm jobs versus 195’000 expected.