US Dollar: Limited downside on softer payrolls – TD Securities

TD Securities analysts anticipate only slight United States Dollar (USD) depreciation if July employment numbers or unemployment rate underperform expectations. The US Dollar Index (DXY) is projected to maintain a level above its 200-day Simple Moving Average near 99, as US-based investors are hesitant to establish short USD positions until inflation data presents a clearer picture.

Stronger-than-expected payroll figures would, conversely, bolster further Dollar gains. The July Nonfarm Payrolls (NFP) forecast is expected to see a modest increase to 70k, following a June surprise of 57k. Private sector job additions are expected to reach 55k, while government employment may contribute 15k, primarily driven by local hiring.

The unemployment rate is anticipated to remain relatively stable at 4.2%, with a slight downward trend expected in the participation rate and potential rebound in employment within the population survey. There is a higher likelihood of a decrease in the unemployment rate to 4.1% rather than an increase to 4.3%. In the event of an upward payrolls surprise, the USD would have greater potential for consolidation, particularly against GBP and AUD, where long USD positions are less stretched.

Should payrolls fall short or the unemployment rate rise, limited USD downside is expected. The base case remains that the DXY index will stay above its 200-day SMA around the 99-handle under these circumstances.