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.
“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.”