Week Ahead: Robust US jobs data to restore USD Index to 1.28?

 

We’re about to enter the final quarter of what’s already been a tumultuous year for global financial markets.

And as it’s been for most of the year, it’s set to be yet another dollar-centric week for global markets.

Global investors and traders are awaiting the next US jobs report as well as potential policy clues by Fed officials who are scheduled to make public comments over the coming week:

Monday, October 3

• Mainland Chinese markets closed this week
• JPY: Japan 3Q Tankan
• EUR: Eurozone September manufacturing PMI (final)
• GBP: UK September manufacturing PMI (final)
• USD: US September ISM manufacturing and manufacturing PMI (final)
• USD: Speeches by Atlanta Fed President Raphael Bostic, New York Fed President John Williams

Tuesday, October 4

• JPY: Tokyo September CPI
• AUD: Reserve Bank of Australia rate decision
• EUR: Eurozone August PPI
• USD: Speeches by New York Fed President John Williams, Dallas Fed President Lorie Logan, Cleveland Fed President Loretta Mester, and San Francisco Fed President Mary Daly

Wednesday, October 5

• NZD: Reserve Bank of New Zealand rate decision
• EUR: Eurozone September services PMI (final)
• Brent: OPEC+ meeting
• US crude: EIA weekly oil inventory report
• USD: Speech by Atlanta Fed President Raphael Bostic

Thursday, October 6

• AUD: Australia August external trade
• EUR: Eurozone August retail sales, Germany August factory orders
• USD: US weekly initial jobless claims
• USD: Speeches by Chicago Fed President Charles Evans, Fed Governor Lisa Cook, Cleveland Fed President Loretta Mester

Friday, October 7

• EUR: Germany August retail sales, industrial production
• GBP: Speech by BOE Deputy Governor Dave Ramsden
• CAD: Canada September unemployment
• USD: US September nonfarm payrolls, speech by New York Fed President John Williams

 

Recently, the equally-weighted USD index soared past 1.28, well above the 1.25 level cited in our previous Week Ahead article (posted every Friday). 1.25 also marked the early-April 2020 cycle high.

However, this dollar index then swiftly unwound gains, as it pulled away from ‘overbought’ conditions, with its 14-day relative strength index moving back below the 70 level.

 

The upcoming US jobs report may help determine whether this USD index can be restored to its recent peak above 1.28, or at least remain at these elevated levels.

 

Here are the market forecasts at present:

• August nonfarm payrolls: 250,000 increase (median estimate)
  If so, this would be the lowest monthly jobs growth since December 2019.
   
• August US unemployment rate: 3.7% (median estimate)
  If so, this would mark s slight uptick, but still hovering close to the pre-pandemic low of 3.5%.
   
• 75-basis point hike by the Fed in November: 69%

 

If the US labour market continues to demonstrate its resilience, either by way of a higher-than-expected headline NFP figure or a lower-than-expected unemployment rate, that should ramp up market expectations for yet another 75-basis point hike by the Fed at its next policy decision due November 2nd.

Such ramped-up expectations may then restore the USD Index back up to 1.28.

 

Also, keep an eye on the slate of Fed officials who are scheduled to make public comments in the coming week.

Should they offer fresh signs that they’re willing to take bolder measures to quell stubbornly elevated US inflation, that may translate into more USD strength as well.

Alternatively, if market fears over an ultra-aggressive Fed further subside, that may in turn see the US dollar unwinding more of its recent gains.

 

USD index Nonfarm Payrolls US jobs report Fed rate hikes inflation Recession