Non-farm payrolls - hurricane impact unlikely to dissuade Fed

Hurricanes are expected to bear down on this month’s non-farm payrolls (NFP) report, with only 100,000 jobs expected to have been created (according to Bloomberg estimates), compared to 156,000 a year earlier. Hurricane Harvey hit too late to be registered in the August report, but September’s report will include Irma’s impact as well. Even if the report doesn’t miss estimates, which is a distinct possibility, it will mark a continued slowdown from the 200,000 readings of June and July. However, there is a bright spot - average hourly earnings are expected to rise by 0.3%, a significant improvement over the 0.1% from a month earlier.

The impact from the hurricane season will mean that this report has limited implications for Federal Reserve’s (Fed) policy, since the disruptions will last only one month. At least the rise in wages means that the Federal Open Market Committee (FOMC) remains on track for another rate increase in December, having signaled in September that it remained determined to push on with more increases in 2018 as well.

Moving beyond the headline numbers, the recent turn up in US data should provide further strength to the US dollar (USD), and amplify the dramatic rally in the dollar index. The Institute for Supply Management (ISM) manufacturing figure for September hit its highest level since 2004, while in a notable development, the prices sub-index also rose through the highs seen earlier in the year, to a level not seen since 2011.

Thus, any weakness in USD caused by the payrolls report is probably a chance for dollar longs to add to positions, and will likely result in only short-term relief for the dollar shorts that have had such a field day in 2017 thus far.

Admittedly, there is still much work for the dollar bulls to do before they can put an end to the losses seen in 2017. The dollar basket needs to move above the August high at $9392 to confirm the creation of a new higher high, and even then it will still be stuck below the 100-day simple moving average (SMA) of $9440. A move above this still leaves the downtrend line at $9600 in play. For now, the bears may be biding their time to push the greenback lower.