USD Awaits US Employment Boost

The NFP Report is Expected to Break Above 200,000 New Jobs in February

U.S. employment data has been mixed ahead of the U.S. non-farm payrolls (NFP) report. A weak Institute for Supply Management (ISM) Employment Index showing a contraction on Thursday is being balanced against a strong ADP Private payrolls report that beat expectations on Wednesday. The ADP Research Institute reported that US private payrolls grew by 214,000 in February beating the forecast of 185,000. Usually there is a low correlation between the ADP and the NFP due Friday, but aside from the employment change disappointment in January they have consistently beaten expectations in the past four months. The private payrolls report shows manufacturing is still weak with a loss of 9,000 jobs, but the optimism comes from the expansion of the services sector that added 59,000 new jobs.

The USD declined against the EUR after the release of the ISM Employment Index that posted a contraction at 49.7 in February. Overall the U.S. service sector continues to expand albeit at a slower pace, but given the focus on employment data this week investors sold U.S. dollars ahead of what could be a disappointing Non-farm payrolls number. Last month even though the NFP headline number was less than anticipated the fact that wages grew and the unemployment rate was lower was enough to boost the USD.

The NFP will be published by the U.S. Department of Labor on Friday, March 4 at 8:30 am EST. Employment is the strongest pillar of the U.S. economic recovery since the credit crisis and the influence on the Fed’s interest rate decision is significant. Economist’s forecasts range around 185,000 to 200,000 new jobs added. Anything outside of that range for the biggest forex indicator will set a direction for the USD.

US Employment to Make Case for Economic Recovery

The U.S. non farm payrolls (NFP) came in under the anticipated 189,000 new jobs in January. Although it disappointed with a 151,000 jobs added (still showing a positive trend) the USD rallied as average hourly earnings gained more than estimated at 0.5 percent. As the U.S. nears full employment as per the headline employment figures the Fed diversified their focus to look at other employment indicators that could shed a positive light on inflation. While the number of jobs has increased, wages have not kept up with that growth. The unemployment rate also managed to drop to 4.9 percent to an 8 year low.

The February NFP report is forecasted to show a gain of around 195,000 jobs, with a more modest 0.2 percent gain in average hourly earnings and the unemployment rate to remain at 4.9 percent. The U.S. Federal Reserve still relies on the employment component as the sturdiest pillar of their claim of a moderate recovery of the U.S. economy. A weaker than expected NFP could seriously challenge another rate hike by the Fed. As it stands the Fed is not expected to change its benchmark rate in the March Federal Open Market Committee (FOMC) meeting given that the global economic conditions have worsened in 2016 since it raised rates in December of 2015. A strong NFP number alone dos not have the power to put March back into the mix, but it could boost the number of rate hikes priced in by the market.

FX market events to watch this week:

Friday, March 4
8:30 am CAD Trade Balance
8:30 am USD Average Hourly Earnings m/m
8:30 am USD Non-Farm Employment Change
8:30 am USD Trade Balance
8:30 am USD Unemployment Rate

*All times EST