The U.S. dollar is trading lower against all of the major currencies this morning except for the British pound and the Japanese Yen. USD/JPY is looking for a reason to run to 100 and while we think last week’s abysmal payrolls report means FX traders should take today’s FOMC minutes with a grain of salt, the expected optimism from the Fed could be just what the currency pair needs to reach that level. We expect the North American trading session to be quiet before the 2pm ET release with no U.S. or Canadian data released beforehand. Fed Presidents Lockhart and Fisher will be speaking today but as non-voting members of the FOMC, their comments are generally less market moving.

The best performing currency pairs today are the Australian and New Zealand dollars. The AUD/USD is trading well above 1.05 while NZD/USD climbed to fresh 1 year highs with more gains likely. China reported its first trade deficit in more than a year with export growth slowing materially. Yet the AUD soared because imports rose a whopping 14.1% yoy, a sign of strong consumption that is nothing but good news for countries that rely on Chinese demand like Australia and New Zealand. Japanese demand for higher yielding investments is also contributing to the persistent rallies in the AUD and NZD.

As for today’s FOMC minutes from the March 19th and 20th monetary policy meeting, the reason why we are looking for optimism is because the meeting came on the heels of a huge jump in non-farm payrolls and large rise in retail sales. We expect talk of varying the size of asset purchases to gain traction that month which could be short term positive for the dollar. However since then, we have seen a huge pullback in job growth, decline in consumer confidence, slower manufacturing and service sector activity. The only unambiguously positive development has been the persistent rise in U.S. stocks. We believe traders should discount the minutes because weak payrolls renews labor market concerns but based on yesterday’s comments from Fed Presidents, not every FOMC voter has been fazed by the softer NFP report. Bullard is a known hawk who did not sound overly concerned about the recent payrolls miss. He said the March payrolls number could be revised (upwards). He also downplayed the labor participation rate, which fell to a 30 year low by saying that it has been falling since 2000. Bullard still believes the unemployment rate will drop to 7% and sees more willingness within the FOMC to make small adjustments in bond purchases. Fed President Lacker who is not a voting member of the FOMC this year said he has not changed his growth forecasts following the jobs report. While we agree that the March payrolls report could be revised higher, we doubt that it will be revised enough such that labor market concerns are eliminated. The dollar did not rally on Bullard’s comments, suggesting that others investors may concur with our skepticism.

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