Week Ahead in FX: Strong NFP Fails to Impress as Dovish Fed Cloud Lingers

Dovish Remarks from the Fed Kept the USD from Gaining on a Strong Jobs Report
Employment remains the strongest and more resilient pillar of the U.S. economic recovery. The U.S. non farm payrolls (NFP) rose by 215,000 jobs in the last month. The unemployment rate rose slightly to 5.0 from 4.9 percent but due to a larger participation rate that sends a positive growth signal. Previous NFP reports had failed to inspire a USD rally despite their headline jobs number exceeding expectations because the wage growth indicators decreased. This time wages rose 0.3 percent in March to tick a box of an overall positive employment report.

The USD did not rally across the board with the release of the NFP. Against the EUR and the JPY it failed to gain ground and oil price weakness helped the greenback versus commodity currencies. The employment data was good, but not good enough against the rhetoric from the Fed’s Federal Open Market Committee (FOMC) statement. Chair Yellen has reiterated the dovish remarks and even brought back into focus the possibility of negative rates in the U.S.

The week of April 4 to 8 will see the Reserve Bank of Australia (RBA) release its monetary policy statement on Tuesday, April 5 at 12:30 am EDT, U.S. Non-manufacturing PMI at 10:00 am EDT and the release of the minutes from the March FOMC meeting on Wednesday, April 6 at 2:00 pm EDT. The USD has traded lower after March FOMC that delivered dovish language and forecasts pointing to a more gradual recovery. The NFP report although positive will not be enough to change the minds of the FOMC ahead of the April meeting.

The USD had net negative week against major pairs. The EUR advanced 2.071 percent versus the dollar as future U.S. interest rate hikes were pushed further cut from market forecasts. Commodity currencies gained the most, but lost some steam at the end of the week as the price of oil and gold suffered setbacks. NZD gained 3.182 percent and AUD 2.199 while the USD lost 1.751 versus the CAD in the past 5 days.

The USD is on track to record the worst quarterly performance since 2010 as Fedspeak and Fedfacts have clashed. The March Federal Open Market Committee (FOMC) disappointed with its dovish tone, specially after the European Central Bank (ECB) had gone all out on its quantitative easing (QE) push earlier in the month. Fed member hawkish remarks reversed the USD down trend, only to be brought down to earth after Fed Chair Yellen’s speech at Economic Club of New York.

The release of the March FOMC minutes could put further downward pressure on the USD when they are published on Wednesday, April 6 at 2:00 pm EDT. Comments from Federal Reserve Bank of Kansas City President Esther L. George will be actively searched as she was the only dissenter on the vote to hold interest rates unchanged. Fed facts and official statements have stressed the caution with which the central bank will approach the decision to raise rates in the futures. That patient stance has made the market punish the USD versus other pairs as it is unlikely there will be more than 2 rate hikes in 2016, when at the end of 2015 the expectation backed by Fed forecasts was double that.

Forex markets events to watch this week:

Monday, April 4
4:30 am GBP Construction PMI
9:30pm AUD Trade Balance
Tuesday, April 5
12:30am AUD Cash Rate
12:30am AUD RBA Rate Statement
4:30 am GBP Services PMI
8:30 am CAD Trade Balance
10:00am USD ISM Non-Manufacturing PMI
Wednesday, April 6
10:30am USD Crude Oil Inventories
2:00pm USD FOMC Meeting Minutes
Thursday, April 7
8:30am USD Unemployment Claims
Tentative EUR ECB President Draghi Speaks
5:30pm USD Fed Chair Yellen Speaks
Friday, April 8
4:30am GBP Manufacturing Production m/m
8:30am CAD Employment Change
8:30am CAD Unemployment Rate