The monthly circus around the release of the US Non-Farm Payrolls is expected to supply a bit of positive news in the sea of red, at least better than last month’s disaster. No, no dramatic leap is likely, but with the whole world slowing down, a gain in jobs may strengthen the dollar against some currencies. Here is what is expected and 5 scenarios for the dollar.
Recent US indicators have been quite gloomy. The biggest blow came from the wide GDP figure: a depressing revision of Q1 growth to only 0.4% and only 1.4% in Q2 (both figures annualized). But we still expect a gain in jobs. Here’s why.
NFP Background
This NFP release is for July. Don’t get me wrong, also July was bad. The manufacturing sector hardly grew, with PMI scoring only 50.9 points. The services sector, which is much bigger, wasn’t much better. It also disappointed with 52.7 points. 50 separates growth from contraction. 
But there still are points of light: the employment components of both PMIs were better, with services at 52.5 points, and manufacturing at 53.5. These are still positive figures.
Another positive figure is the ADP report. This should be taken with a big grain of salt, as last month’s positive ADP was followed by a horrible NPF result. But, contrary to previous contradictions, ADP provided another positive month, with 114K jobs, and only marginally revised the result of the previous month, from 157K to 145K.
So, I believe that the NFP will show around 50K jobs gained, and will hopefully show some upwards revisions for the previous months, which saw only 18K and 25K jobs gained. Official expectations are even more optimistic, at 90K.
Unemployment rate remains minor
The unemployment rate will continue to play second fiddle. It has ticked up from 8.8% to 9.2% in the past three months. Given the stability and recent small drop in weekly jobless claims, an unchanged rate or even a drop to 9% will not make a difference. Also a rise to 9.4% will not be dramatic, and will leave the focus on the Non-Farm Payrolls.
It is important to note that the official unemployment rate excludes discouraged people that aren’t looking for a job anymore – people that dropped from the workforce. In some cases, employers don’t even want to interview such people.
5 Scenarios
It is very important to note that the risk factor is dominant in the markets. This means that bad figures weaken the dollar against the “safe haven” yen and franc, while boosting it against the rest, and this applies in the other direction, depending on the case. Let’s start:
- Within expectations: +40K to +99K – a rise which is larger than last month will trigger the usual choppy trading with no major changes after the dust settles.
- Above expectations: +100 to +150K Good news cannot be ruled out after those big falls. The dollar will likely rise against the yen and the franc, and slide against the rest – risk appetite.
- Well above expectations: +200K or more: This seems very unlikely at the moment. Such a case will see the dollar soaring across the board.
- Below expectations: 0 to 39K: Another weak gain in jobs will likely see the current trends continue, with significant moves: this means a weaker dollar against the yen and the franc, and a slightly stronger one against the rest – classic risk aversion.
- Well below expectations: A job loss: This is a worrying scenario, but cannot be ruled out. This is likely to send the yen and franc to new records against the dollar, and the commodity currencies to lose a lot of hot air. Also the euro and the pound will suffer.