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NFP Preview: US Dollar, Fed Rate Cuts Hinge on Jobs Data Due

NFP Preview: US Dollar, Fed Rate Cuts Hinge on Jobs Data Due

Rich Dvorak, Analyst

NFP PREVIEW: NONFARM PAYROLLS TO WEIGH ON FED RATE CUT BETS & THE US DOLLAR

  • Nonfarm payrolls (NFP) data for February is slated for release during Friday’s trading session and will reveal how the coronavirus outbreak has impacted the monthly US jobs report
  • The US Dollar could swing wildly in response to upcoming NFP data if actual employment figures deviate materially from market estimates and prompt big moves in Fed rate cut bets
  • Read more on Trading the NFP Report, or check out these details on the Federal Reserve, forinsight on how US jobs data can influence FOMC interest rate expectations and the USD

Monthly US nonfarm payrolls data – arguably one of the most high-profile and market-moving economic indicators – is due for release this Friday, March 06 at 13:30 GMT.

The February 2020 NFP report is expected to cross the wires with a reading of 175K job additions for the headline figure, which will compare to the prior month’s print of 225K that beat expectations of 165K.

NFP – NONFARM PAYROLLS HISTORICAL DATA (CHART 1)

Chart of NFP Historical Data Nonfarm Payrolls Monthly

In light of the stated dual-mandate that governs Federal Reserve, it comes as little surprise that monthly NFP data tends to weigh heavily on FOMC monetary policy decisions.

Earlier this week, the Fed delivered a shock 50bps rate cut in aims of countering rekindled recession odds that stem largely from the novel coronavirus outbreak and its impact on business activity.

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That said, perhaps upcoming NFPs could signal whether or not the Fed will capitulate more and match lofty interest rate cut expectations currently priced in by market participants.

This will likely be reflected by changes in the futures-implied Fed funds rate and corresponding moves in the broader US Dollar Index.

FOMC – FED INTEREST RATE CUT EXPECTATIONS (CHART 2)

Fed Interest Rate Cut Expectations FOMC Chart US Dollar Forecast

According to latest overnight swaps pricing, traders are expecting the FOMC to slash its target interest rate by another 0.5% at the upcoming March 18 meeting.

Looking further out the implied Fed funds rate curve, there are about three and a half 25-basis point cuts priced in by the September 16 meeting.

Read More: US Dollar Eyes 2019 Lows vs Yen as Yields Plunge

A disappointing US jobs report could exacerbate the recent spike in Fed rate cut bets, which might cause the US Dollar to accelerate its ongoing selloff.

USD PRICE OUTLOOK – US DOLLAR IMPLIED VOLATILITY & TRADING LEVELS (CHART 3)

USD Price Chart US Dollar Forecast Forex Volatility Implied Trading Ranges

Underscoring the potential for outsized moves across the USD and its major peers is the latest overnight implied volatility readings derived from forex options contracts.

Expected price action in the US Dollar is at extremes headed into the nonfarm payrolls data release with nearly all overnight implied volatility numbers rank in the top 95th percentile of measurements taken over the last 12-months.

Read More: Nonfarm Payrolls Drives the US Dollar & Currency Volatility

Options-implied trading ranges are calculated using 1-standard deviation (i.e. 68% statistical probability price action is contained within the implied trading range over the specified time frame).

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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