Talking Points:

  • US Dollar may extend gains as jobs data boosts Fed rate hike prospects
  • Aussie Dollar drops as RBA’s Harper refuses to rule out further easing
  • Political uncertainty weighs down New Zealand Dollar, British Pound

The US Dollar continued to march higher Asia Pacific trade having returned to the offensive yesterday amid pre-positioning for the release of September’s much-anticipated employment data. The pace of payrolls growth is seen slowing, with 80k jobs added last month compared with 156k in August. Wage inflation and the jobless rate are seen holding unchanged at 2.5 and 4.4 percent respectively however.

Within that context, slowing job creation speaks to a tightening labor market poised to produce the kind of wage push inflation that the Fed is counting on to bring price growth to its 2 percent medium-term target in a sustainable way. Most central bank officials seem to envision exactly that. Increasingly hawkish rhetoric over the past month has investors pricing in the steepest tightening path in close to two years.

The markets’ initial reaction to whatever comes across the wires will probably be driven by the disparity between realized and expected nonfarm payrolls growth. Follow-through is likely to be driven by the pace of average hourly earnings growth however. If that at least holds steady, the Fed’s reflation narrative will remain broadly intact and the greenback might have scope to continue building upward.

The Australian Dollar underperformed after RBA board member Ian Harper said a rate cut can’t be ruled out while the economy is “operating below its potential”. Politics hurt the New Zealand Dollar and the British Pound. The former is waiting for coalition talks to produce a government after an inconclusive election while the latter is suffering as Conservative Party in-fighting complicates Brexit negotiations.

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Asia Session

US Dollar May Extend Advance After Key Employment Data

European Session

US Dollar May Extend Advance After Key Employment Data

** All times listed in GMT. See the full DailyFX economic calendar here.

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

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