The Automatic Data Processing (ADP) Research Institute will release its monthly report on private-sector job creation for August on Thursday. The announcement, known as the ADP Employment Change, is expected to show that the country’s private sector added 145,000 new positions in August following the 122,000 increase recorded in July.
The survey is usually released a couple of days before the official Nonfarm Payrolls (NFP) data (not this month, as it will be released the prior day), and despite random divergences in the outcome, market participants tend to read it as an advanced indicator of the Bureau of Labor Statistics’ (BLS) jobs report.
After leaving monetary policy settings unchanged in July, the Federal Reserve (Fed) seemingly shifted its focus toward the labor market, with inflation readings giving enough confidence to policymakers about further progress toward the 2% central bank’s target. In its policy statement, the Fed noted that it is attentive to risks on both sides of its dual mandate, a change from the June statement, in which it said it was 'highly attentive' to inflation risks.
While speaking at the Jackson Hole Economic Symposium on August 23, Fed Chairman Jerome Powell acknowledged that the time has come for the monetary policy to adjust. "We will do everything we can to support a strong labor market as we make further progress toward price stability,” Powell said.
According to the CME FedWatch Tool, markets are currently pricing in a nearly 30% probability of the Fed lowering the policy rate by 50 basis points (bps) at the upcoming policy meeting. In case the ADP report suggests that employment in the private sector increased at a stronger pace than forecast in August, market participants could refrain from pricing in a large rate reduction in September. On the other hand, a disappointing ADP print, close to 100,000, could feed into growing fears over cooling conditions in the labor market and allow markets to remain hopeful about a 50 bps rate cut, at least until the BLS publishes the jobs figures for August on Friday.
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
ADP will release the Employment Change report on Thursday, September 5. Investors expect an increase of 145,000 in private sector payrolls.
Following the 208,000 increase recorded in March, employment growth in the private sector has been growing at a softening pace, hitting 122,000 in July. In case there is a noticeable rebound in this data, with a reading close to 200,000, the US Dollar (USD) could outperform its major rivals with the immediate reaction. Another disappointing print, however, could have the opposite effect on the USD’s valuation.
Eren Sengezer, European Session Lead Analyst at FXStreet, shares a brief technical outlook for the USD Index (DXY):
“The DXY lost over 2% in August and touched its weakest level since July 2023 near 100.50 on August 27. Although the index managed to stage a rebound from this level, the near-term technical outlook is yet to provide a convincing sign of a reversal of the bearish trend.”
“On the upside, the 20-day Simple Moving Average (SMA) aligns as immediate resistance at 102.00. In case the DXY rises above this level and confirms it as support, technical buyers could show interest. In this scenario, 102.65 (Fibonacci 38.2% retracement of the latest uptrend) could be seen as the next bullish target before 103.30 (Fibonacci 50% retracement). On the flip side, 101.00 (static level) aligns as the first support before 100.50 (end-point of the downtrend) and 100.00 (psychological level).”
The ADP Employment Change is a gauge of employment in the private sector released by the largest payroll processor in the US, Automatic Data Processing Inc. It measures the change in the number of people privately employed in the US. Generally speaking, a rise in the indicator has positive implications for consumer spending and is stimulative of economic growth. So a high reading is traditionally seen as bullish for the US Dollar (USD), while a low reading is seen as bearish.
Read more.Next release: Thu Sep 05, 2024 12:15
Frequency: Monthly
Consensus: 145K
Previous: 122K
Source: ADP Research Institute
Traders often consider employment figures from ADP, America’s largest payrolls provider, report as the harbinger of the Bureau of Labor Statistics release on Nonfarm Payrolls (usually published two days later), because of the correlation between the two. The overlaying of both series is quite high, but on individual months, the discrepancy can be substantial. Another reason FX traders follow this report is the same as with the NFP – a persistent vigorous growth in employment figures increases inflationary pressures, and with it, the likelihood that the Fed will raise interest rates. Actual figures beating consensus tend to be USD bullish.
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