MUFG’s Lloyd Chan expects today’s US nonfarm payrolls to pose upside risks for the US Dollar (USD), with labour indicators hinting at a stronger April print. However, he notes that a sharp hawkish repricing of US rate expectations is unlikely, which should limit Dollar strength and keep US Dollar Index' (DXY) advance relatively contained around current levels.

Upside NFP risk but capped Dollar

"US nonfarm payrolls (NFP) is due today, alongside the unemployment rate and wage growth. Markets have largely maintained their build-up of net long USD positioning into NFP, though overall positioning does not appear particularly stretched. The DXY continues to hold firm around the 98.00 level, but spot price action looks somewhat softer than implied by positioning."

"Several labour market indicators point to upside surprise to April NFP, especially with consensus at a moderate +65k. Initial jobless claims eased to around 203k on average in April from 209k in March. The ADP report also showed a pickup in private sector hiring, while the ISM services employment index rose to 48.0 from 45.2 previously."

"NFP risks therefore appear skewed to the upside in our view, which would be USD positive."

"That said, a sharp hawkish repricing of US rate expectations remains unlikely, which should help contain the extent of any dollar strength following the release."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)