The US dollar (USD) may have been in selloff mode for the start of the year, despite several analysts dubbing 2014 as the Year of the US dollar. However, tables could turn and actually indicate support for the lower-yielding Greenback. Here are four reasons why the USD is looking bullish right now.
1. The US Dollar Index (USDX) bounced off a key support level.
A quick look at the longer-term time frames of USDX shows that the dollar is finding support at a major psychological handle. It dipped to the 80.00 mark in the past few days, as the US NFP report showed an increase in the jobless rate, placing it farther away from the Fed’s target level. However, psychological support zones do tend to hold pretty well for this index, suggesting that a climb might be in the cards.
2. The US jobs market is turning a corner.
Recall that the latest jobs release came in much stronger than expected for the month of February. The NFP report printed a 175,000 increase in payrolls, higher than the estimated 151,000 gain. Components of the report revealed that business services, education, and the health industry contributed much to the increase. This marks a break from the two consecutive months of bleak hiring spurred by poor weather conditions, despite the continuation of the cold snap in the US last month.
3. Fed will carry on with its taper plan.
Fed Chairperson Yellen previously remarked that the Fed isn’t guaranteed to hike rates as soon as the jobless rate dips below 6.5% but the recent rebound in hiring assures traders that the US central bank will still carry on with its plan to reduce bond purchases. Yellen has also mentioned that the slowdown in hiring was merely a result of seasonal factors and isn’t worried that further weakness will be seen, lending more support to the idea that the Fed won’t reduce its taper size.
4. Risk sentiment is on the dollar’s side.
Another factor that could keep the USD afloat in the near term is the weak risk appetite. There are plenty of uncertainties in the markets these days, mostly spurred by the tension in Ukraine and now the missing Malaysian Airlines plane. In addition, speculations of a credit crunch in China is starting to weigh on equity markets, which might lead traders to pursue the safe-haven US dollar.