– USD supported by dovish central banks
This week brings about the February nonfarm payrolls report on Friday; we see a trend-consistent gain of 160k, with the unemployment rate unchanged at 7.9%. The March 1 spending sequestration kicked in as expected and should subtract a substantial 300k from payrolls this year. We believe that this will significantly temper the market’s optimism on US growth over the coming months. We also continue to see Fed decisions driven by labour market developments and expect the Fed to expand their balance sheet into H2 2014. The focus this week will also be on several G10 central bank meetings. We expect a dovish tone across the central banks announcing this week, which could help extend the recent USD gains (on the ECB and the BoE, please see below). On the RBA, our economists hold a non-consensus view of a 25bp rate cut on Tuesday. Although this would clearly be negative for the AUD, we sense that most of the AUD weakness has been driven by the US dollar strength recently. In Canada, the BoC should soften but (contrary to some expectations) not completely remove its tightening bias on Wednesday. Thus there is scope for CAD outperformance versus AUD. Overall, the USD remains overbought according to the BNP Paribas STEER model and we believe that beyond the near-term strengthening, a weaker USD trend will gradually reinstate itself over the coming weeks.
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BNP Paribas