After rising strongly in March the U.S. dollar kicked off the month of April with losses against most of the major currencies. The sell-off was modest and represents nothing more than profit-taking ahead of Friday’s non-farm payrolls report. Jobless claims rose back above 700K but that increase will not draw away from what should be a very strong jobs report. The 4-week moving average continued to fall to its lowest level in more than a year. With restrictions easing across the nation, restaurants expanding capacity and the weather improving, businesses are hiring. Consumer confidence is also at a one-year high with private payroll provider ADP reporting 3 times more job growth in April than March.

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Economists expect nonfarm payrolls to rise by 647k, which would be the strongest month of job growth since October. The unemployment rate should improve but average hourly earnings growth is expected to remain slow. Tomorrow’s forecast is a lofty one but there’s no doubt that the momentum in the U.S. economy is accelerating and businesses are hiring. As shown below, all of the related indicators for non-farm payrolls that we typically watchpoint to a strong NFP report. In fact, there’s a good chance Friday’s number will beat, which would reinforce the U.S. dollar's dominance and inspire fresh gains in the currency. 112 USD/JPY is not out of the realm of possibility. Even if job growth misses, with payrolls rising by only 500K for example, the pullback in the dollar should be short-lived because 500K is still a very good number and more importantly Biden’s infrastructure plan and the overall recovery will accelerate job growth in the coming months.

Arguments in Favor of Stronger Payrolls

1. ADP private payroll growth rises to 517K from 176K
2. 4-week average jobless claims falls sharply in March
3. Continuing claims sink below 4 million
4. Consumer Confidence index surges to 1 year high
5. University of Michigan sentiment index surges to 1 year high
6. Challenger reports fewer job cuts
7. Employment component of ISM manufacturing rises sharply

Arguments in Favor of Weaker Payrolls

For the second day in a row EUR/USD held 1.1700. The upwardly revised Eurozone manufacturing PMI report overshadowed weaker retail sales. While the improvement in manufacturing is encouraging, the slowdown in consumer demand is worrisome particularly as spending is likely to weaken further with new restrictions. The U.K.’s manufacturing PMI report was also revised higher, driving GBP/USD above 1.38.

The best performing currency was the New Zealand dollar. Consumer confidence weakened in March according to ANZ but as a currency with generally bigger moves, it benefitted the most from the pullback in the dollar. Despite an unexpected improvement in building permits and higher oil prices, the Canadian dollar refused to rally. The Australian dollar recovered earlier losses to end the day unchanged against the greenback. The latest Australian economic reports were mixed with the manufacturing PMI index rising slightly to 59.9 from 58.8, retail sales falling less than expected and the trade surplus shrinking to 7.5B from 9.6B (economists were looking for an improvement).