US Dollar: Limited downside on softer payrolls – TD Securities

TD Securities strategists expect only modest US Dollar (USD) weakness if July payrolls or the unemployment rate disappoint. They see US Dollar Index (DXY) remaining above its 200-day SMA near 99, with US-based investors reluctant to build short USD positions until US inflation data softens more convincingly. Upside payroll surprises would instead support further Dollar gains.

Dollar reaction scenarios around payrolls

"We expect July NFP [Nonfarm Payrolls] picked up modestly to 70k after surprising to the downside with 57k in June. Private job gains were likely 55k with government adding a solid 15k, led by local hiring. "

"The UE [unemployment] rate likely went sideways at 4.2% after declining in June. Downward momentum for the participation rate will likely continue, while employment in the population survey could rebound. Altogether, we see slightly hawkish risks to our UE rate forecast with a higher chance of a decline to 4.1% than an increase to 4.3%."

"In the case of an upside payrolls surprise, the USD should have more room to consolidate higher, particularly against GBP and AUD where the long USD positioning are not stretched."

"In the case of a payrolls miss or rising UE rate, we would expect limited USD downside. Our base case is for the DXY index to still stay above its 200d SMA on the 99-handle under this scenario."

"n the case of an upside payrolls surprise, the USD should have more room to consolidate higher, particularly against GBP and AUD where the long USD positioning are not stretched. US data have stayed on par with or trended above the global average throughout 2026. Another upside payrolls surprise could increase market participants' view that monetary policy in the US is no longer restrictive and the economy stands at the precipice of a new growth cycle."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)