AUD/USD trades subduedly near 0.7020 ahead of US employment, PMI data

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AUD/USD trades subduedly near 0.7020 ahead of US employment, PMI data

AUD/USD ticks down to near 0.7020 ahead of key US data releases.
The ADP employment data is expected to significantly influence market expectations for the US interest rate outlook.
The Australian Dollar remains broadly firm on RBA’s hawkish interest rate hike.

The AUD/USD pair trades marginally lower around 0.7020 during the European trading session on Wednesday. The Aussie pair ticks down as the US Dollar (USD) trades higher ahead of the key United States (US) economic data releases in the North American session.

At the time of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, is up 0.2% to near 97.55.

In Wednesday’s session, investors will pay close attention to the US ADP Employment Change and the ISM Services Purchasing Managers’ Index (PMI) data for January.

The ADP is expected to report that the private sector created 48K fresh jobs, higher than 41K in December. The impact of the private sector job market data is expected to be significant on market expectations for the Federal Reserve’s (Fed) monetary policy outlook, as the Nonfarm Payrolls (NFP) data is unlikely to be released this week due to the partial government shutdown. However, the US federal government has reopened after the House cleared a bill to fund federal agencies on Tuesday.

Currently trades seem confident that the Fed will not cut interest rates in the March and April monetary policy meetings, according to the CME FedWatch tool.

The ISM Services PMI is seen lower at 53.5 from 54.4 in December, indicating that the service sector activity advanced again, but at a moderate pace.

Meanwhile, the Australian Dollar (AUD) trades broadly firm as the Reserve Bank of Australia (RBA) has kept the door open for further interest rate hikes even after raising them by 25 basis points (bps) to 3.85% on Tuesday.

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.