• USD has more to lose on jobs miss than to gain on beat.

• BIS and COFER data to shed light on FX trends.

• RBA to stay put.

US Jobs Data in the Hot Seat, Shutdown Risk Low Impact

USD rallied sharply this week against all major currencies supported by an upward adjustment to the US swaps curve. We expect USD to stabilize around current levels until Friday’s US jobs data. The labor market data is the most important driver for the Fed and the most critical data for monitoring downside risks to the economy now.

As such, if labor demand remains weak, the swaps curve will adjust lower against USD. But if labor demand recovers more than expected, upside for USD is limited, because the swaps curve already implies a cautious Fed easing cycle. In fact, 3-year swaps rates are trading above the FOMC’s median 2027-2028 projections.

On Friday, September non-farm payroll gains are expected at 50k vs. 22k in August and the unemployment rate is seen at 4.3% vs. 4.3% in August. Apart from the top-line data, the other indicators worth tracking to assess the health of the labor market are:

(i) Industry breakdown. Since April, non-farm payroll gains have been driven by non-cyclical industries like healthcare, social services, and leisure and hospitality. This is indicative of a labor market that has become more fragile.

(ii) Employment-to-population ratio. That ratio has edged lower since 2024 suggesting the unemployment rate looks better than it really is. Meanwhile, fewer workers entering the market reduces potential GDP growth, which in turn dampens demand for goods and services. Firms may respond by curbing hiring, feeding into a self-reinforcing downturn.

The August JOLTS job openings data will be noteworthy (Tuesday). Job openings are expected to dip to near a one year low at 7100k vs. 7181k in July. The decline in job openings to unemployed workers points to softer wages growth ahead which is a headwind to consumer spending activity. ISM September manufacturing (Wednesday) and services (Friday) are also on deck.

Risk of a US government shutdown will likely have a minimal impact on markets. Lawmaker must reach a deal on a stopgap spending bill and pass it through Congress before October 1. Failure to act could lead the US government to temporarily close. In the past, shutdowns lasted only a few days minimizing the drag on the economy (see here for details). Moreover, there are ways for the US Treasury to keep paying its bills for several more months before the severe consequences of a debt default becomes an issue.

BIS and COFER to Shed Light on FX Trends

On Tuesday, the Bank for International Settlements (BIS) will publish the preliminary results of its 2025 Triennial Central Bank Survey of Foreign Exchange and Over-the-counter Derivatives Markets. The previous survey, in April 2022, showed that trading in foreign exchange spot and OTC derivatives markets averaged a record $7.5 trillion per day with the US dollar on one side of 88% of all trades.

On Wednesday, the IMF publishes the Q2 Currency Composition of Official Foreign Exchange Reserves (COFER) data. The data will offer an initial look at whether US trade, foreign and fiscal policies are accelerating the dollar’s declining role as the primary reserve currency.

In Q1, USD accounted for 57.7% of official foreign exchange reserves, down from a high of almost 73% in 2001. In recent years, the decline in the US dollar’s share of central bank reserves is mostly due to the shift into the Australian dollar, Canadian dollar, other currencies (Korean won, Singapore dollar, and Swedish krona) and to a lesser extent the Chinese yuan. The share of FX reserves in euro, British pound, Japanese yen, or Swiss franc has been more or less flat.

ECB In a Good Place

Eurozone September CPI is due Wednesday. Headline CPI is projected at 2.2% y/y vs. 2.0% in August while core CPI is expected at 2.3% y/y for a fifth consecutive month. Overall, inflation is stabilizing at the ECB’s 2% medium-term target consistent with steady ECB policy and supportive of EUR. The 100-day moving average (around 1.1590) offers EUR/USD good near-term support.

Swiss Inflation in Stability Zone

Swiss September CPI is due Thursday. Headline CPI is expected at 0.3% y/y vs. 0.2% in August and core CPI is projected at 0.7% y/y vs. 0.7% in August. The Swiss National Bank (SNB) pointed out this week that while inflation is likely to be slightly higher in the short term, in the medium term the conditional inflation forecasts remains within the range of price stability.

This suggest that the bar for negative SNB rates is high. The swaps market continues to imply nearly 50% odds of a 25bps rate cut to a low of -0.25% in the next 12 months in part because SNB President Martin Schlegel reiterated that the bank is prepared to cut further if required. However, any settlement of the trade dispute with the US would significantly lower the risk of the SNB resorting to a negative policy rate and bodes well for CHF vs. USD and EUR.

Japan’s Tankan Survey in Focus

USD/JPY tested important psychological resistance at 150.00 this week on broad USD strength. We doubt USD/JPY can sustain a break above 150.00 given that it’s already trading well-above the level implied by US-Japan 2-year bond yield spreads.

Moreover, our base case is for the Bank of Japan (BOJ) to resume normalizing rates at the next October 30 meeting which is not fully priced-in (markets bet implies 58% odds of a 25bps hike). Japan’s Tankan business survey points to an ongoing recovery in real GDP growth and underlying inflation is making good progress towards the BOJ’s 2% target. The Q3 Tankan survey on Tuesday is policy relevant.

RBA to Stay Put

AUD/USD dropped nearly two big figures since reaching a high of 0.6707 on September 17. We expect AUD/USD to bottom-out between 0.6400-0.6500. The RBA is on track to ease more cautiously than the Fed and global economic activity is resilient.

The RBA is widely expected to keep the policy rate at 3.60% on Tuesday. No Statement on Monetary Policy is tied to this meeting. The next one is due November 4. RBA Governor Michele Bullock downplayed this week the prospect of rate cuts beyond what markets already price-in (25bps in the next 12 months). Bullock pointed out that inflation is now within the 2–3% target range and “while labour market conditions have eased a little since we last met [August 12]…we assess that some tightness remains.”

China PMI Watch

China will release both its official and private September PMI readings on Monday. The PMIs are expected to remain consistent with a soggy domestic growth outlook. It’s clear that China must shift its growth model toward one in which domestic consumption plays a greater role. In our view, a gradual revaluation of China’s currency could help China stimulate consumer spending by boosting disposable income through cheaper imports. Bottom line: USD/CNH downtrend is intact.