US Dollar Surges on Strong Jobs Data, Testing Regional FX Resilience
The US dollar ended last week on a firmer footing after a stronger-than-expected August nonfarm payrolls report. Nonfarm payrolls rose by 162k in August, well above consensus expectations of 55k, while July employment was revised higher to a gain of 21k from an initially reported decline.
The unemployment rate held steady at 4.1% and labour force participation improved to 61.6%, pointing to a resilient labour market. Meanwhile, average hourly earnings slowed slightly to 3.1%yoy from 3.2%yoy, suggesting wage pressures continue to ease gradually.
Markets continue to price more than 60% probability of a 25bps Fed hike at the September FOMC meeting and approximately 35bps of cumulative tightening by December, equivalent to around 1.4 hikes by year-end. The DXY gained 0.3% on Friday, though essentially unchanged since Fed Chair Warsh's Jackson Hole speech.
The risk of Fed tightening on the back of stronger than expected jobs data could test regional FX resilience. Thailand's headline inflation is likely to accelerate in August as higher energy prices feed through. However, Thailand's weaker growth backdrop acts as a constraint on policy tightening, and USDTHB may remain biased higher in the near term.
In Indonesia, US inflation data this week could challenge the recent rupiah recovery. Firmer US inflation could reinforce elevated US yields and test USDIDR's recent break below 17,700. While domestic buffers remain supportive, foreign ownership of outstanding SRBI has already reached around 27%, close to previous highs seen in late 2024.