Dollar rocked after dismal NFP print
In August, the US economy merely added 235,000 jobs, the smallest figure for this all-important data in seven months.
That’s a far cry from the market forecasted figure of 733,000, and a steep decline from the NFP prints above 900k for the 2 months prior.
Economists have long been wary of the downside risks from the Delta variant, and those are becoming evident in the net zero jobs created in the leisure and hospitality sectors last month! Note that these services (e.g. waiters and waitresses bringing your food to the table at the restaurant) are highly sensitive to the resurgence of Covid cases.
Taking the headline figure at face value, one would think that the US jobs market is losing momentum, and hence the Fed would be given more leeway before having to taper its asset purchases, much less meeting the criteria for the US rate hike.
Such a narrative may have driven the knee-jerk plummet in this equally-weighted Dollar index.
However, the ensuing rollercoaster ride for the greenback, and the fact that its pared most of its losses soon after, suggest there’s more than meets the eye.
Although the headline NFP print was dismal:
- The US unemployment rate actually fell by 0.2 percentage points from the month prior to 5.2% in August.
- Average hourly earnings also grew faster than expected (0.6% month-on-month vs. est. 0.3% m/m), while the year-on-year rate came in at 4.3%, compared to the estimated 3.9%.
- The employment-to-population ratio for US workers in their prime working age (25-54 years old) also ticked higher to 78%, moving closer to pre-pandemic levels above 80%.
These seemingly conflicting readings of the latest US jobs report is set to leave market participants scratching their heads about the timing of the Fed’s tapering, which Fed Chair Jerome Powell just last week had said he’d be open to consider before 2021 runs out.
Ultimately, market participants would want to know what Fed officials make of this slowdown in hiring.
And with notable hawk Dallas Fed President Robert Kaplan due to speak mid-week, the scheduled Fed Speak could inject another bout of volatility across global markets as traders and investors clamour for more certainty about the Fed’s policy outlook.
Note that the DXY has been pushed into oversold territory on its daily chart as it broke past its lower Bollinger band in the immediate aftermath of the latest US jobs report.
While the DXY could be poised for a technical rebound from oversold levels, the greenback may only see a sustained recovery if Fed officials sound defiantly hawkish and press ahead with their tapering plans this year, despite the apparent slowdown in hiring.
Another key component for the DXY would be the euro, with the latter accounting for 57.6% of the former. Should the ECB signal a hawkish tilt at their policy meeting in the coming week, that could heap more downward pressure on the buck.