How will the Dollar React to Payrolls – IIC Research
By: Ansar Anis Bhesania,
Ismail Iqbal Commodities (Pvt.) Ltd.
Based on yesterday’s price action in the foreign exchange market, currency investors are positioned for a strong non-farm payrolls report. The bar is set high for this month’s release with economists looking for U.S. companies to add 200k jobs and for the unemployment rate to fall from 6.7% to 6.6%.
We believe that payrolls will meet if not exceed the market’s expectations, providing a further boost to the dollar. Every month we take a look at 8 labor market indicators to help us determine whether NFPs will rise or fall.
The most important is the employment component of the non-manufacturing ISM report, which rebounded sharply last month. Although this report failed to predict the rise in payrolls in February, historically it has a very strong correlation with the non-farm payrolls report and this month it tells us U.S. companies added workers at a more aggressive pace. Layoffs are also down according to Challenger Grey & Christmas and private payroll provider ADP reported an increase in corporate payrolls.
Weekly jobless claims have been very low with the 4-week moving average falling sharply to 319.5k. While confidence has been mixed with the University of Michigan Consumer sentiment index falling slightly, the survey conducted by the Conference Board found sentiment at its highest level in 6 years.
The only area of concern is in the manufacturing sector where job growth slowed. With nearly all of the leading indicators for payrolls pointing to a strong release, we have every reason to believe that today’s report will be positive for the dollar. However how positive will depend on the scope of the upside surprise. Almost everyone thinks payrolls increased last month because jobless claims have been low, weather related distortions faded and the Federal Reserve tapered asset purchases in March. If payrolls rise by less than 150k, the dollar will weaken and gold will go up. If payrolls increase by 225k or more, gold will melt down but if it comes in anywhere between 195k and 220k, the impact on the greenback would be small but still positive and negative for gold. Keep an eye on revisions as well because it could also affect the dollar’s reaction.