Data releases this week have hinted that the strong US activity story may be about to turn. The ISM services index declined more than expected, with the “prices paid” component slowing meaningfully to a four-year low. Yesterday, the NFIB reported that small business was looking to cut back on hiring and with small businesses accounting for almost half of total US jobs suggest we could see sub-50k payrolls by June.
Today’s March NFP figure is expected at 214k with some economists predicting a miss to the downside, a print below 200k should put pressure on the dollar given it’s high sensitivity to data recently as the market tries to get ahead of future Fed actions. The US Dollar Index (DXY) is currently trading between resistance at 105, which was the February high, and support at the psychological 104 level. Both these levels will be in play on the back of today’s NFP, FX traders will be watching for breaks or holds of these key levels to gauge short term momentum for DXY.
A May cut from the Fed looks off the table, but June remains in play with odds currently at 60% in the Fed Funds futures market. Should the pricing for a June cut move from 60% to 100%, the dollar may well take a bigger hit than what the swing in rate differentials would imply.
By
Lachlan Meakin
Head of Research, GO Markets Australia.
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