TD Securities Sees Modest US Dollar Weakness in Disappointing Payrolls

TD Securities strategists expect only modest US Dollar (USD) weakness if July payrolls or the unemployment rate disappoint. They see the US Dollar Index (DXY) remaining above its 200-day SMA near 99, with US-based investors reluctant to build short USD positions until US inflation data softens more convincingly.

The strategists expect July Nonfarm Payrolls (NFP) to pick up modestly to 70k after surprising to the downside with 57k in June. Private job gains were likely 55k, while government added a solid 15k, led by local hiring. The unemployment rate likely went sideways at 4.2% after declining in June.

In the event of an upside payrolls surprise, the USD should have more room to consolidate higher, particularly against GBP and AUD where long USD positioning are not stretched. However, if July payrolls miss or the unemployment rate rises, TD Securities expects limited USD downside. Their base case is for the DXY index to stay above its 200d SMA on the 99-handle under this scenario.