What Level of Non-Farm Payrolls will be Good Enough for the Dollar? The $100 million question for tomorrow is: What Level of Non-Farm Payrolls will be Good Enough for the US Dollar? The market currently believes that 70k jobs were added to US payrolls in the month of January, but if payrolls match this forecast, how much will it really help the dollar? When looking at non-farm payrolls, what traders need to think about is what it means for US monetary policy going forward. Is job growth good enough to slow the Fed down or is it bad enough to force the Fed to deliver another big rate cut? Since the last NFP release, interest rates have been cut by 150bp. One of the main reasons is the weakness of the labor market. In December, only 18k jobs were added to US payrolls but the private sector actually lost 13k jobs. According leading indicators for non-farm payrolls, job growth should rebound in the month of January. However in order for there to be a meaningful rally in the US dollar, we would need to see more than 100k jobs added to US payrolls or 70k plus a strong revision to the December figure. A sharp sell-off in the dollar will be triggered by any reading less than 50k. What happens if payrolls are between 50k and 100k? Assuming that there is no major revision to the December figure, the US dollar should rally, but the rally will probably be short lived since job growth around those levels will not stop the Fed from continuing to lower interest rates (Read our full Non-farm Payrolls Preview). In addition to the labor market report, we are also expecting the final numbers for the University of Michigan consumer confidence survey, manufacturing ISM and construction spending. All of these reports are expected to be dollar negative because they represent the most vulnerable sectors of the US economy. Personal income and personal spending were released today and they were stronger than expected, but any optimism was offset by the sharp rise in jobless claims which is part of the reason why we no longer expect a blowout NFP number.
