Unimpressive NFP Numbers Kill USD Rally from ADP Employment

On Thursday we saw a decent rally in the USD, which got close to 100 pips against commodity dollars, after strong ADP employment figures. The ISM services also were positive, inccreasing from the previous month, at a time when services are cooling in most economies. This was a green light for USD bulls after a round of poor data from the US.

As a result, the USD rallied but at the same time, market’s expectations for Friday’s NFP (Non-Farm-Payrolls) emlpoyment report jumped higher too. The numbers were softer than expected, which ultimagelly weighen on the USD. The first reaction to the NFP report was mixed, as the softer headline number competed with higher-than-anticipated wage growth. This led to a decline in the value of the USD, but buyers did have a fight back.

Although, the bond market took center stage, with yields starting to fall. The 2-year yields dropped below 5%, eventually triggering a significant decline in the USD. The selling pressure on USD/JPY was particularly noteworthy and raised questions about potential actions from the Ministry of Finance (MOF) of Japan or the Bank of Japan (BOJ). However, it could also be attributed to profit-taking by investors.

The commodity currencies, such as the AUD, NZD and CAD, benefited from both higher commodity prices and improved risk appetite, resulting in significant gains. GOLD gave back most gains compared to other assets, although it ended up $15 higher, with a strong bullish candlestick. So, the USD is even worse off than before it started the week.

June 2023 US Non-Farm Payrolls Report

• June non-farm payrolls +209K vs +225K expected
• Prior was +339K (revised to +306K)
• Two-month net revision -6K vs +93K prior
• Unemployment rate 3.6% vs 3.6% expected
• Prior unemployment rate 3.7%
• Participation rate 62.6% vs 62.6% prior
• U6 underemployment rate 6.9% vs 6.7% prior
• Average hourly earnings MoM +0.4% vs +0.3% expected
• Average hourly earnings YoY +4.4% vs +4.2% expected
• Average weekly hours 34.4 vs 34.3 expected
• Change in private payrolls +149K vs +200K expected
• Change in manufacturing payrolls +7K vs 0K expected
• Household survey +273K vs -310K prior
• Birth-death adjustment +26K vs +231K prior

The impressive streak of 14 consecutive readings that exceeded the consensus has finally come to an end, although it was a close call. The market had anticipated a higher value than the consensus based on the strong ADP (Automatic Data Processing) report, and as a result, the value of the dollar has decreased in the aftermath.

However, there is another streak that continues unbroken: we have now experienced 30 consecutive months of job growth. It is worth noting that the wage number, which shows an increase of 0.4% compared to the expected 0.3%, can be slightly misleading. The actual unrounded figure is 0.358%, but regardless, it is still a significant enough change to capture the attention of the Federal Reserve (FED).

Gold XAU Live Chart