US Dollar weakened today after several important US economic report showed up less than expected. ADP employment report fell again, and so did ISM's Manufacturing PMI.

US Dollar weakened today after several important US economic report showed up less than expected. ADP employment change fell again, and so did ISM's Manufacturing PMI. Analysts too, anticipate lower Nonfarm Payrolls (NFP) tomorrow although unemployment rate and average weekly earnings may differ. 

 

Unsatisfactory ADP, ISM 

Automatic Data Processing report on employment shows that US private sector only created 189,000 jobs last month compared to 214,000 in February. That is the lowest figure since Janaury 2014 and is far from the expected 225,000 increase. This also means that ADP have reported fourth consecutive drop.

 

Data

(Above) ADP Employment Change April 2014-March 2015. (Below) ISM PMI Index April 2014-March 2015.
 

Meanwhile, different report showed that Institute for Supply Management version of US Manufacturing PMI fell to lowest in almost two years, from 52.90 in February to 51.50 in March. This is also its fourth consecutive drop, but index over 50 means that manufacturing still expands.

Although lower ADP and ISM did not always means lower NFP, but the two reports have triggered warning that March NFP may be lower than February. Furthermore, NFP previously skyrocketed from 239,000 to 295,000, thus opens the chance for it to lower this month. Polling by Reuters among economists expects NFP to show an increase of 245,000 in March.

 

Attractive Greenback

On the other hand, Fed officials starting from chief Janet Yellen, her vice Stanley Fischer, and other FOMC members have made good use of time after March FOMC to ensure the public that they are quite optimistic on US economic recovery and that if the promising condition continues then Fed rate may be hiked in 2015. Jeffrey Lacker from FOMC 2015 even said in front of Greater Richmond Chamber of Commerce at March 31, Given what we know today, a strong case can be made that the federal funds rate should be higher than it is now. I expect that, unless incoming economic reports diverge substantially from projections, the case for raising rates will remain strong at the June meeting. or so Reuters reported.

Falling yields, particularly on the 10-years Treasury, after ADP and ISM drop suggested that the market is not easily believe in the Fed official words, as rife speculations mention that rate hike may beed to near the end of 2015 instead of the previously expected mid-2015, as FXStreet quoted Kasper Kirkegaard from Danske Bank, Following yesterday's weaker data, the market is pricing a higher probability that the first hike will be postponed. The futures market is pricing less than a 20% probability of a June hike and only about a 70% probability of a hike by September.

Even so, several consider US Dollar buy to be attractive still. Kathy Lien from BK Asset Management in her notes yesterday wrote that as long as NFP is still more than 200,000 and average hourly earnings continue to grow, then rate hike in the summer is still possible. Furthermore, Once U.S. data starts to improve, sentiment will shift, investors will reposition for tightening and the dollar will break out of its consolidation and enjoy a new leg higher. The closer the Fed is to raising interest rates, the more attractive the dollar will be.

As well, Richard Franulovich from Westpac consider weak US Data due to seasonal interference and unsupportive yield may push US Dollar Index lower, but it will go up again in medium term. He said to FXStreet, We see much of Q1's weakness as a function of one-time negatives (weather, west coast ports strike) and as such the complexion of the US data should firm, though perhaps not well into spring, helping restore the USD's medium term uptrend.