Why the USD's Quiet Slide Ahead of Payrolls Could Signal Two More Fed Cuts

• You could capture upside in AUD/USD if the dollar keeps slipping.
• Two more Fed rate cuts this year remain plausible if payrolls stay weak.
• Asian FX pairs like KRW and JPY are poised to drift lower against the dollar, but only if the USD fails to rebound.
• Historical payroll disappointments have preceded multi‑month USD declines.

You’re about to see why the USD’s lull could rewrite your forex strategy.

Why the USD’s Consolidation Mirrors Fed Rate‑Cut Expectations

The U.S. nonfarm payrolls report, due later today, is the market’s single biggest weekly labor gauge. When the headline number comes in below consensus, it signals a softer labor market, which historically eases inflationary pressure. CBA economist Carol Kong argues that a series of sub‑par payrolls will keep the USD under pressure and push the Federal Reserve toward two additional rate cuts before year‑end.

For investors, the direct implication is simple: a weaker dollar improves the relative value of commodities, emerging‑market assets, and any foreign‑denominated earnings. The dollar’s current level at USD/JPY 154.36 and USD/KRW 1,457.59 reflects a market that is pricing in a modestly softer outlook, but the pair’s flatness also suggests that traders are waiting for the payroll data to confirm the narrative.

How Asian Currencies React to U.S. Labor Data

Asian currencies have been in a consolidation phase, with the Australian dollar (AUD) holding at 0.7076 against the USD and the Korean won (KRW) flat at 1,457.59. This stability is not a sign of strength; rather, it is a waiting game. Historically, a weak payroll report fuels capital outflows from the USD into higher‑yielding Asian assets, nudging currencies like the won and yen lower.

Take the yen, for example. In previous quarters where payrolls missed expectations, the yen often slipped 0.5‑1.0% against the dollar within a week, as carry‑trade positions unwind. The current flat reading could turn into a modest decline if the payroll numbers miss the forecast, reinforcing the view that the Fed will need to act.

Historical Payroll Patterns and Their Ripple on the Dollar

Looking back at the 2023 payroll cycle, three consecutive months of sub‑consensus jobs added roughly 150,000 fewer jobs than expected. The USD fell about 2% against major peers, and the Fed accelerated its rate‑cut timetable, delivering two cuts in the latter half of the year.

Similarly, in early 2022, a surprise dip of 250,000 jobs triggered a sharp 1.8% slide in the USD/JPY pair, as traders priced in a more dovish Fed stance. Those episodes illustrate a pattern: weak payrolls → lower inflation expectations → increased probability of Fed easing → dollar depreciation.

Investor Playbook: Bull vs. Bear Cases for the USD

Bull Case: The payroll report surprises on the upside, adding more jobs than expected. A stronger labor market could sustain inflation, prompting the Fed to keep rates higher for longer. In that scenario, the USD may rally 0.8‑1.2% across major pairs, rewarding short‑term USD‑long positions and hurting commodity‑linked assets.

Bear Case: Payrolls come in weak, confirming the downward trend. The Fed responds with two more cuts, pushing the policy rate down to 4.25% by year‑end. The USD could lose 1‑1.5% against the yen, won, and Aussie, creating buying opportunities in those currencies and in commodities like oil and gold that benefit from a softer dollar.

For portfolio construction, consider a modest overweight in AUD/USD and a cautious short‑USD stance via options or futures. Diversify with inflation‑linked bonds and emerging‑market equity exposure to capture the upside from a depreciating dollar.