Indian rupee: USD/INR – The potential for reaction to today’s US labour data

Risks skewed to the upside, according to Credit Agricole

Indian rupee: USD/INR – The potential for reaction to today’s US labour data, Thursday 17 October:

Today the forex market will be focused on the belated September US employment reports scheduled for release at 13.30 BST. Given that the data was collected before the government shutdown, economists at Credit Agricole think it will provide “a pretty good read on the pulse” of the US labour market inasmuch as this month’s numbers may have sampling problems.

Analysts widely anticipate the US unemployment rate to stay at 7.3 percent in September, yet the forecast range, from 7.1 to 7.4 percent, indicates a distinctly positive bias. Such decline in the jobless rate, should it come to pass, might need to be taken with a proverbial grain of salt since the prior two readings also trimmed a tenth of a percentage point but poor job creation data stymied a dollar rally.

In the result, Non-farm Employment Change may prove to be the pivotal data today, with consensus for an increase to 180,000 new jobs after August’s 169,000. Excluding a few outliers (six out of the 93 prognoses), Credit Agricole notes that “the range of estimates fits a normal distribution with a standard deviation of only 13,000.” Given this tight range of market expectations, an actual reading outside this array is likely to spark above-average swings for the greenback. “Furthermore, the bias of forecasters estimates is to the downside, suggesting moves are likely to be bigger on an upside surprise than a downside surprise”, Credit Agricole surmises.

In the event of a disappointing release, the French bank believes that the dollar would sustain its recent downtrend as the market recalibrates the likely timing of QE tapering. Credit Agricole itself projects Non-farm Employment Change to come in at 160,000 new jobs in September, well below the market consensus.

An upside surprise would likely see broad-based gains for the dollar, especially “at the expense of EM currencies and higher-yielding G10 currencies”, adds Credit Agricole. Forex strategists at Citibank also see a stronger-than-expected US job creation in September hitting hard the currencies which have strengthened the most since the last FOMC meeting, including the Indian rupee.

It seems that the rupee-market already knows that risks from the US employment report are skewed in favour of the dollar since the USD/INR is currently trading around 61.571, up 1.56 percent intraday. Notably, the pair’s appreciation is more pronounced than the marginal 0.09 percent gain in the US Dollar Index to 79.82 so far today, as traders weigh the external imbalances of the Indian economy.

The US Dollar Index is still holding above its long-term support, projected from late 2011 (see chart below). However, a decisive move below the critical technical trend-line might be a psychological blow for the bulls.

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