Forex Today: US Nonfarm Payrolls data to ramp up volatility
Here is what you need to know on Tuesday, December 16:
The US Dollar (USD) stabilizes early Tuesday after posting marginal losses against its major rivals on Monday. The US economic calendar will feature Nonfarm Payrolls (NFP) data for October and November, alongside the wage inflation and Unemployment Rate figures for November. Additionally, October Retail Sales and the preliminary December S&P Global Purchasing Managers' Index (PMI) readings will be watched closely.
US Dollar Price This Month
The table below shows the percentage change of US Dollar (USD) against listed major currencies this month. US Dollar was the weakest against the Canadian Dollar.
| USD | EUR | GBP | JPY | CAD | AUD | NZD | CHF | |
|---|---|---|---|---|---|---|---|---|
| USD | -1.30% | -0.93% | -0.84% | -1.48% | -1.28% | -0.80% | -0.89% | |
| EUR | 1.30% | 0.38% | 0.45% | -0.18% | 0.02% | 0.51% | 0.42% | |
| GBP | 0.93% | -0.38% | 0.33% | -0.56% | -0.36% | 0.12% | 0.04% | |
| JPY | 0.84% | -0.45% | -0.33% | -0.65% | -0.47% | 0.03% | -0.06% | |
| CAD | 1.48% | 0.18% | 0.56% | 0.65% | 0.15% | 0.70% | 0.61% | |
| AUD | 1.28% | -0.02% | 0.36% | 0.47% | -0.15% | 0.49% | 0.40% | |
| NZD | 0.80% | -0.51% | -0.12% | -0.03% | -0.70% | -0.49% | -0.09% | |
| CHF | 0.89% | -0.42% | -0.04% | 0.06% | -0.61% | -0.40% | 0.09% |
The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).
The USD Index lost about 0.15% on Monday as the cautious market atmosphere helped the currency limit its losses in the second half of the day. In the European morning on Tuesday, the USD Index moves sideways above 98.00, while US stock index futures lose between 0.3% and 0.8%. The Unemployment Rate is forecast to remain unchanged at 4.4% in November, and the NFP is expected to rise by 40K.
EUR/USD stays in a consolidation phase at around 1.1750 after registering small gains on Monday. HCOB PMI data for Germany and the Eurozone will be featured in the European economic calendar later in the session.
GBP/USD failed to make a decisive move in either direction on Monday and ended the day virtually unchanged. The pair edges slightly lower in the European morning on Tuesday but holds above 1.3350. The UK's Office for National Statistics (ONS) will release October employment data at 07:00 GMT.
The data from Canada showed that annual inflation, as measured by the change in the Consumer Price Index (CPI), held steady at 2.2% in November. This print came in below the market expectation of 2.4%. USD/CAD extends its sideways grind below 1.3800 after closing flat on Monday.
USD/JPY lost about 0.4% on Monday on growing expectations for a hawkish Bank of Japan (BoJ) policy outlook. The pair continues to stretch lower early Tuesday and was last seen down 0.25% on the day at 154.83.
The data from Australia showed that the business activity in the private sector continued to expand in December, albeit at a softer pace than it did in November, with the S&P Global Composite PMI edging lower to 51.1 from 52.6. AUD/USD remains under modest bearish pressure after this report and trades below 0.6650.
Gold lost its bullish momentum after testing $4,350 and closed flat on Monday. XAU/USD stays on the back foot early Tuesday and trades near $4,280, losing about 0.5% on the day. Growing optimism about a Russia-Ukraine peace agreement seems to be causing the precious metal to lose interest.
Nonfarm Payrolls FAQs
Nonfarm Payrolls (NFP) are part of the US Bureau of Labor Statistics monthly jobs report. The Nonfarm Payrolls component specifically measures the change in the number of people employed in the US during the previous month, excluding the farming industry.
The Nonfarm Payrolls figure can influence the decisions of the Federal Reserve by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation. A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls’ result, on the either hand, could mean people are struggling to find work. The Fed will typically raise interest rates to combat high inflation triggered by low unemployment, and lower them to stimulate a stagnant labor market.
Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls’ figures come out higher-than-expected the USD tends to rally and vice versa when they are lower. NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.
Nonfarm Payrolls are generally negatively-correlated with the price of Gold. This means a higher-than-expected payrolls’ figure will have a depressing effect on the Gold price and vice versa. Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold. Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.
Nonfarm Payrolls is only one component within a bigger jobs report and it can be overshadowed by the other components. At times, when NFP come out higher-than-forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary. The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but only in seldom events like the “Great Resignation” or the Global Financial Crisis.
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