Key Highlights
- Amid higher US Treasury yields, the price of gold is still under pressure near monthly lows.
- In a volatile market environment and ahead of important data, the US dollar is still struggling.
- With $1,712 and $1,700 in mind, the path of least resistance for XAU/USD appears to be downward.
The ADP National Employment Report is a monthly measure of nonfarm, private employment change based on payroll data from approximately 400,000 U.S. business clients.
The release, which comes two days ahead of government data, is a good predictor of the non-farm payroll report. This indicator’s movement can be extremely volatile.
A reading that is higher than expected should be interpreted as positive/bullish for the USD, while a reading that is lower than expected should be interpreted as negative/bearish for the USD.
What’s In For Traders
Because of the correlation between the two, traders frequently view employment data from ADP, America’s largest payroll provider, report as a forerunner of the Bureau of Labor Statistics release on nonfarm payrolls, which is typically released two days later.
The overlap between the two series is quite high, but on specific months, the difference can be quite large.
Similar to the NFP, this report is watched by market analysts because persistently strong employment growth raises inflationary pressures and, consequently, the likelihood that the Fed will raise interest rates.
Actual data that exceeds expectations typically favors the USD.
Will US ADP Deepen The Pain For Markets?
The price of gold is declining and is currently trading near its monthly low of $1,720, mirroring Tuesday’s Asian trading.
The bright metal is still on the defensive despite the US dollar’s general decline as Treasury yields hold onto their previous gains and expectations for a 75 basis point rate hike in September increase.
According to the most recent FedWatch Tool from CME Group, markets are betting on an outsized Fed rate hike occurring next month with a 70% probability.
Aggressive bets on the Fed tightening were boosted by Tuesday’s release of the JOLTS job openings data and a strong US Consumer Confidence report.
Even though the US S&P 500 futures have gained 0.40% thus far, the expectation of higher borrowing costs is still a drag on global equities and puts downward pressure on the US dollar.
As the Eurozone struggles with a record-high inflation rate, expectations that the ECB will raise rates by 75 basis points as soon as next week continue to weigh on the non-interest-bearing yellow metal.
This Wednesday at 9:00 GMT, the Eurozone inflation (HICP) data will be released. Economists anticipate a 9.0% YoY reading. The bullion may experience new selling pressure if the inflation data increases support for the 75 basis point ECB hike in September.
The ECB’s top policymakers continue to support the idea that, even if it hurts the economy, aggressive tightening is necessary to rein in raging inflation.
What Next
The crucial ADP Employment Change report, which will be released in the US after a two-month hiatus, could push the dollar higher in the coming leg.
Given the lower estimates at +200K in August, an upward surprise in the ADP numbers cannot be completely ruled out.
With rising rates and positive US data as a backdrop, gold’s price will likely continue to move downward.
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