US: Mixed Signals for Fed Policy Outlook - MUFG
Lee Hardman, Currency Analyst at MUFG, notes that the US dollar has
remained on a firmer footing in the Asian trading session having
rebounded more notably against commodity-related and emerging market
currencies so far this week.
Key Quotes
“The
US dollar has been firming for a little longer against Asian currencies
as evident by the Asian dollar index which peaked on the 19th April.
The US dollar is unlikely to extend gains much further ahead of
tomorrow’s NFP report which could prove crucial in determining whether
the recent rebound is sustained.
Market participants remain wary
understandably that the NFP report will reveal some softening of
employment growth which could weigh on the US dollar. Still solid
employment growth does not appear fully consistent with recent weaker
economic activity. At some point the marked divergence in performance is
likely to be narrowed by either employment growth slowing or the US
economy picking back up.
The economic data releases yesterday
failed to provide much further clarity on the current policy dilemma.
The ADP survey revealed that private employment growth likely softened
in April but should still remain relatively solid. However, the clarity
of the signal is questionable as the early timing of Easter this year
may have played a role in dampening estimated employment growth in the
ADP survey which should not be as evident in the NFP report. Secondly,
the ADP survey has tended recently to underestimate NFP private
employment growth.
The release yesterday of the latest
non-manufacturing survey provided a more positive signal revealing that
business confidence increased for the second consecutive month in April
by a larger than expected 1.2 point to 55.7. As a result the sharp
decline in confidence from earlier this year which heightened recession
concerns has now been almost fully reversed.
The survey provides
further reassurance that the US economy is likely to rebound in the
coming quarter after the weak start to the calendar year. It was also
notable that the employment sub-component rebounded more sharply by 2.7
point to 53.0 in April. The reading is till consistent with softer
employment growth but provides some welcome relief after the worryingly
weak readings in the previous two months. Admittedly, it did not provide
a very accurate signal as employment growth remained solid.”