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Talking Points:

• US Dollar may fall in risk-on trade if payrolls print saps haven demand

• Yen to fall as commodity currencies rise on upbeat US employment data

• NZ Dollar gains on ebbing RBNZ rate cut bets, Aussie Dollar rebounds

All eyes are on June’s US jobs report in the final hours of the trading week. The economy is expected to have added 180k jobs. Besides the headline figure, traders will be keen to see if May’s abysmal payrolls number is revised and if the growth rate in average hourly earnings rises as expected. At 38k, the last jobs growth number marked a dramatic deviation from trend averages in the triple digits. On the wage inflation front, a reading of 2.7 percent year-on-year is expected to deliver the fastest wage inflation in seven years.

US economic news-flow has broadly improved relative to consensus forecasts since mid-May (disappointing labor-market data notwithstanding). This hints that analysts’ models may be underestimating the overall health of the economy and opens the door for an upside surprise. Such an outcome may feed hopes that strong US performance could be a potent countervailing force to malaise in Europe following the “Brexit” referendum, boosting risk appetite.

The sentiment-linked Aussie, Kiwi and Canadian Dollars may rise alongside stock prices in a risk-on environment. Meanwhile, the anti-risk Japanese Yen may face selling pressure. The fate of the US Dollar could be most curious of all however. Priced-in Federal Reserve monetary policy expectations suggest the central bank will not raise rates again until 2018. Strong jobs data not materially change this in the near term because investors’ dovish view is mostly inspired by fears of external headwinds. This may mean that sentiment-oriented trading dynamics predominate, with the greenback falling amid ebbing safe-haven demand.

The New Zealand Dollar outperformed in overnight trade, with prices continuing to rise alongside front-end bond yields as interest rate cut bets continued to fade. The move follows yesterday’s comments from RBNZ Deputy Governor Grant Spencer, who said that further easing “could pose financial stability risk”. The Australian Dollar corrected upward having lagged the G10 FX majors yesterday after Standard & Poor’s downgraded its outlook for Australia’s credit rating from “stable” to “negative”.

Where is the US Dollar expected to go in the third quarter? See our forecast here!

Asia Session

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