The US Dollar (USD) is trading softer overall—but still holding well within recent trading ranges as markets position for this morning’s US Non-Farm payroll data, Scotiabank's Chief FX Strategists Shaun Osborne and Eric Theoret report.

USD eases broadly as markets position for soft US jobs report

"Gains for the major currencies are led by the developing market/high beta currencies, with the SEK, ZAR and NZD this morning’s outperformers. Global stocks are (mostly) firmer while bond yields are slightly lower as investors anticipate soft data giving the Fed the green light to cut rates on September 17th. There is little doubt that the US jobs market is loosening as labour demand softens. This week’s JOLTS data showed that, for the first time since 2021, there were (slightly) more unemployed (7.24mn) people in the US than available jobs (7.18mn)."

"How quickly this dynamic develops remains to be seen but Fed policymakers appear to be increasingly conscious of the emerging labour market slack as they mull the rate outlook. The street is looking for a 75k rise in US August Non-Farm Payrolls, with most estimates falling within the 60-90k range. Recall that July data showed a 73k increase. The unemployment rate is expected to nudge up a tenth to 4.3%. Scotia’s call is for zero gains in jobs, the absolute low end of the forecast range. An outcome that matches the consensus is likely to bolster market expectations for a 25bps cut at the next FOMC."

"A 1/4-point cut is already more or less fully priced in to swaps so an on-consensus outcome may pressure the USD somewhat and drive the DXY to test support at 97.50. A weaker number, which lifts expectations of a more aggressive cut may be needed to drive the index significantly lower. An upside surprise will give the USD some respite but other challenges (weak fiscal policy, focus on Fed independence etc.) will limit gains to the mid/upper 98 range for the DXY I think. Japan’s Labour Cash Earnings data released overnight showed another strong gain (4.1% Y/Y) in July, supporting the prospect for a mild tightening in the BoJ policy rate next month."