ADP Foreshadows Sharper NFP Drop; USD Under Pressure

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The US Non-Farm Employment Change report , or Non-Farm Payrolls ( NFP ) for short, is a strong indicator of market activity in one of the world's largest economies. As such, this report carries a significant impact on the value of the US dollar ( USD ) through various channels, both direct and indirect.

These channels have very broad implications for analysts. For instance, if the number of employed people in the US is increasing, we can deduce that more jobs are being created and the US economy is on its way to recovery. A negative reading may be reflected with a sharp flight away from the greenback. A positive figure, however, could help the USD halt its latest decline against the other major currencies.

The US experienced a rapid rise in employment from January through June with the 10-year census hiring by the US federal government. However, those recently employed by the Census Bureau have now been counted, and we've seen US employment figures decrease just as rapidly over the past two months since those numbers are no longer included in the data.

With Wednesday's ADP report verifying the recent pause in employment growth across the US, a number of analysts are now expecting Friday's release to be a bit more ominous than previously thought. With private sector employment showing a cut of 10,000 jobs, the addition of the federal government's cuts from the Census Bureau should show nation-wide employment in a much worse position than ADP's private sector figures. We have seen the downward pressure building on the US dollar this entire week as a result.

At the moment, the NFP appears to be showing an expected 101,000 jobs lost in August. However, if today's ADP figures are any sign of what to expect, a reading much lower than -101K may be developing. I wouldn't be surprised to see the NFP forecast revised before Friday's release to reflect this expectation. Tied in with this expectation is a pricing in of a weaker USD. We've seen the greenback dropping steadily against most of its currency rivals this week, likely due to a rise in risk appetite following positive news from China and Australia, but also from an expected slow-down in American economic recovery.



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Forex and Currencies

Referenced Stocks: NFP , USD

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