US dollar to wobble a little on payrolls

Foreign Currency Exchange Outlook : In addition to the Mortgage Bankers’ delinquency report today, the payrolls report is the dominant factor. Forecasts range from ADP’s drop of only 33,000 (private sector) to a drop of 75,000 (Market News survey) or 100,000 (Bloomberg), but some private forecasters see 125,000. We guess the impact of data on how far it diverges from the forecast, but with the US Dollar exchange rate so strong today and breaking historic milestones, we imagine payrolls would have to be vastly worse to stop the dollar freight train, like 125,000-150,000.

Even so, these are not terrible numbers when you consider the meltdown in the real estate and financial sectors, and in comparison to the size of the US economy and workforce. Besides, as data yesterday showed, productivity is simply wonderful, up to 4.3% from 2.2% in the revised Q2 version. Unit labor costs fell 0.5%, a revision from +1.3%. And the Aug service sector ISM rose over the boom/bust line to 50.6 from 49.5 with easing price paid (72.9 from 80.8). This is a resilient economy that no other can match. Currency Analysts have been saying that the dollar is rising because the euro is falling on fresh bad data about the European slowdown, but it’s not as one-sided as that. The US dollar must be getting some support from the good data in the US, too.

Another view comes from RBS Greenwich Capital, whose chief economist says "This is not a flight to quality, it is simply a flight. Gold for example has failed to benefit, cash is king -- even the greenback, warts and all, or the yen, zero rates and all." This is a less rosy way of viewing things but valid. What if investors flee to dollar paper and then decide they like it there?

We expect the US dollar to wobble a little on payrolls but probably not to spike both ways as it usually does. This is a freight train. As we said at the start of this move in August, we need to Think Big about this move. The idea of 1.3350 is not at all silly. We have a harder time with the yen going to 100, which is unjustified on any grounds other than carry trade unwind panic, but never mind.

Bye For Now

Barbara Rockefeller

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