Australian Dollar flattens against USD in countdown to US ADP labor data

The Australian Dollar ranges vs. the US Dollar ahead of the US ADP Employment Change and ISM Services PMI data for July.
Investors will closely monitor the US NFP data on Friday.
The RBA is expected to leave policy rates steady next week.

Sagar Dua FXStreet

The Australian Dollar (AUD) trades flat against the US Dollar (USD) at around 0.7050 during the European trading session on Wednesday. The Aussie pair struggles for a direction as investors await the United States (US) ADP Employment Change data for July, which will be published at 12:15 GMT.

At press time, the US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, trades marginally lower at around 99.80.

The agency is expected to report fresh hiring of workers in the private sector at 70K, lower than 98K in June.

Investors will pay close attention to private employment as it will influence market expectations for the Federal Reserve’s (Fed) monetary policy outlook. The dependence of the Fed’s interest rate projections on the economic data has increased as the central bank has turned data-dependent and has stopped delivering so-called “forward guidance”.

In Wednesday’s session, investors will also focus on the ISM Services PMI data for July, which will be published at 14:00 GMT. The Services PMI is expected to arrive higher at 54.5 from 54.0 in June.

This week, the major trigger for the US Dollar will be the Nonfarm Payrolls (NFP) data for July, which is scheduled for Friday.

On the Aussie front, market expectations for the Reserve Bank of Australia’s (RBA) monetary policy decision on August 11 are expected to remain the key driver for the antipodean.

Aussie pressured as softer core inflation tempers RBA hike urgency

Analysts at Deutsche Bank highlight that the latest inflation data have eased pressure on the RBA to tighten further, noting that annual core inflation "edged up from +3.5% to +3.6%, but remained below the consensus estimate of +3.7%, reducing the urgency for additional interest rate hikes after the RBA already raised rates three times this year." They suggest that this softer-than-expected core print reinforces the market’s reassessment of the need for further near-term policy tightening, adding to the headwinds facing the Aussie.

Economic Indicator

ADP Employment Change

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.

Why it matters to traders?

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.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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