Latest client note from RBS courtesy of our friends at efxnews.com
RBS trading desk forecast NFPs of 180k and add:
250k and above, upside surprise on wage inflation - We do not have strong conviction in a higher USD prevailing even on an outperformance in US employment, especially if it comes without a clear uptick in wage inflation, which is a key variable in linking solid employment gains to an eventual pickup in inflation. But after two days of broad USD weakness, particularly vs. the commodity exporters, we think the USD could gain a temporary reprieve on a buoyant report that surprises on both job gains and wage inflation. A stronger USD and a sense that rate hikes in the US remain "live" could weigh on USD-based commodity prices, including oil prices. Long USD/CAD, Long USD/MXN.
175k - 250k, wage inflation in-line - We see job gains in this range as consistent with further diminishing of slack in the labor market. But our directional conviction is fairly low in this range - we worry the USD could show a similar pattern to the December employment release on January 8th, whereby initial USD-strength is not sustained. Given our bullish JPY stance, we'll look to fade JPY weakness should it develop post-payrolls.
175k and below, wage inflation disappoints - A continuation of USD-long position liquidation would likely continue on a soft employment report as the market's current pricing of a prolonged pause in the Fed Funds rate is emboldened by one month's worth of soft payroll growth. Greater confidence that FOMC rate hikes may be on pause is likely applauded by EM currencies. Not only does Brazil still have very high real interest rates in an environment where the world's major central banks are each seen turning more accommodative, a lower USD/BRL could induce confidence that inflation expectations will not become unanchored. Short USD/BRL,"
