Dollar Gains Supported by Resilient US Data and Oil Prices

Resilient US data and elevated Treasury yields are supporting the US Dollar, according to OCBC's analysts Sim Moh Siong and Christopher Wong. They highlight that higher oil prices are also contributing to the dollar's strength. The key event this week is the US labour market report, with a potential upside surprise in payrolls reinforcing Fed tightening expectations.

The analysts note that the consensus expects nonfarm payrolls to rise by 90,000 in September, down from 162,000 in August, while the unemployment rate is forecast to remain unchanged at 4.1%. They also mention that markets are pricing almost four Fed rate hikes over the next year, which appears overly aggressive unless demand-driven inflation re-emerges.

OCBC's base case remains for a moderate USD rally into year-end. However, they temper their constructive view by two factors: ongoing gradual CNY appreciation and improving prospects for JPY strength as Japan's policy backdrop becomes more supportive.