Dollar Sharply Higher on Extraordinary Rise in ADP Non-Farm Employment

ForexNewsNow | Published on January 5, 2011 at 3:04 pm

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NEW YORK (Forex News Now) – This morning, Automatic Data Processing, Inc. or ADP, released its monthly Non-Farm Employment Change report. The report showed the U.S. economy had added 297K jobs in December, compared to November’s increase of only 92K.

This result was almost three times the consensus expectations of a 100K increase among market analysts.  Today’s report also showed the highest reading in the history of the indicator.

U.S. Dollar Rallies Sharply

Currency market trading immediately after the ADP number showed a significant post-release rally in the U.S. Dollar against the other major currencies. As of this writing, the Greenback has mostly sustained these gains.

The USD/JPY rate was the most dramatically affected by the news, with the Greenback pushing up almost one big figure to 83.05 from 82.20. The U.S. Dollar also gained significant ground against the Euro, as EUR/USD traded down to 1.3127 from the 1.3200 level seen immediately before the release.

Intraday analysis also showed substantial losses in the AUD/USD, GBP/USD and NZD/USD currency pairs, while the USD/CAD rate rose to the 0.9981 level from the 0.9920 level seen just before the ADP release.

Importance of the ADP Non-Farm Employment Change Indicator

This morning’s release in the daily forex news illustrates how the ADP report can dramatically affect the value of the U.S. Dollar against other major currencies, as well as the price of gold.

Although the ADP Employment report does not usually carry the weight of the key U.S. Non-Farm Payrolls number due out this coming Friday, the results of the ADP report often give the market a useful preview of that indicator.

Furthermore, the accuracy of the ADP report’s predictive value on Non-Farm Payrolls has been consistently shown since ADP began releasing the report in May of 2006.

Given the impressive result seen today, one could now reasonably expect the market consensus for the Non-Farm Payrolls number to rise from its former +136K consensus as at least some analysts will be revising their forecasts upwards.

The ADP Non-Farm Employment report gauges the number of people employed by companies that use ADP’s payroll services during the previous month. Nevertheless, the important economic indicator excludes the farming and government sectors of the economy.

Employment growth is a key factor to consumer spending and hence directly influences the overall health of the U.S. economy.  Therefore, U.S. employment figures are closely watched by the forex market to gauge economic strength, which in turn directly influences the value of the U.S. Dollar.

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