The reaction to today's flat reading in the non-farm payroll report was a back and forth affair. At first the ugly payroll figure was initially seen as risk-negative with stocks and oil sliding, and gold gaining. The USD saw a knee-jerk gain against higher yielders.

Then, the market interpreted the bad release as meaning that it would lead to more stimulus from the Fed, perhaps with the Fed easing as soon as this month, which would be a very negative fundamental factor for the USD, and the USD was sold against its higher yielding rivals.

Finally, the bad news was taken for bad news with stocks dipping further, and the USD getting another round of buying on risk aversion. This was especially felt in the commodity and growth linked currencies like the USD/CAD and AUD/USD which moved sharply in favor of the USD, though the EUR/USD hit a fresh intra-day low and the GBP/USD was rejected at its attempt to move above 1.6250.

By 10AM ET, an hour and a half after the release, we saw the USD giving back even those gains.

In other words traders in USD crosses got whipsawed back and forth.

Here's a look at the AUD/USD as an example of the volatility following the release:

The search for safety also helped to boost the Japanese Yen and resurgent Swiss Franc.

In this environment, gold was an easy bet as it benefits from both risk aversion (on the back of worries about growth and weaker equities/oil) as well as speculation of more QE which debases the USD. It pushed to a high of $1881 before easing back.

What's Does Today's Report Mean for USD in September?

As the dust settles in the wake of the release, the market will have to decide which factor will drive markets next week and the rest of September as we await the FOMC on September 20th.

Will the data in the US point to a dip back into negative growth, and spark another round of stimulus by the Fed - a USD negative? Or, will we see a move towards safety and US Treasuries on fear of slowing growth in both the US and Europe and renewed concerns about the sovereign debt crisis, which can help the USD.

width=315The speculation over more Fed easing will only grow with each negative data report from the US.

The Fed will not be able to get another jobs report before their next decision, and they may opt to wait till we get September's job figures to see if this flat reading was more a result of the aftermath of the debt ceiling debate and and S&P downgrade and the financial turmoil it caused during the month (as well as some distortion from the Verizon strike), or if it will be a black swan event that sees the US lurching towards recession.

We have a speech by President Obama on jobs next Thursday, but any proposals are likely dead on arrival in a recalcitrant Congress. Therefore the Fed's medicine may be the only thing stopping the US from sliding back into negative growth.

That means we are likely to see a weaker USD going forward in September.

Nick Nasad
Chief Market Analyst