Dollar Index clocks fresh 7-week high in Asia

The American dollar clocked a fresh 7-week high of 94.02 in Asia against the basket of currencies on US tax reform progress and in anticipation of a better-than-expected payrolls release.

At press time, the dollar index [DXY] is trading at 93.91. The bid tone around the greenback strengthened on Thursday after Congressional Republicans moved to hasten an overhaul of the US tax code, with the Republican-controlled House of Representatives approving a fiscal 2018 spending blueprint to help advance an eventual tax bill.

Also helping the US dollar gain altitude was the upbeat August core capital goods, which pointed to robust business spending despite the impact of hurricane Harvey and Irma.

The immediate focus is on the US non-farm payrolls report (due at 1800GMT), which is expected to show the economy added 90,000 jobs last month after rising by 156,000 in August.

Dollar Index Outlook

Kathy Lien from BK Asset Management writes, "unlike past NFPs, this month's report won't have as much impact on the Federal Reserve's monetary policy plans and the dollar for 2 reasons.

#1 - First the Fed isn't expected to raise interest rates again until December and there are 3 labor market reports between now and then to evaluate. 

#2 - Second this report will be distorted by the hurricanes. After Hurricane Katrina in 2005 the Bureau of Labor Statistics reported an initial loss of -35K jobs, but one month later, it was revised to an increase of 67K jobs. So the prospect of revision and distortion means that market participants, including the Fed will discount any significant weakness. 

Therefore the initial decline on a soft report should be short lived but if job growth beats expectations and rises by 80K or more, the dollar will rise quickly and aggressively as the data shows only limited setback from the hurricanes