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August 6, 2021

What's Next For The USD After Friday's NFP Report?

Bart Kurek

On Friday the 6th of August, the US printed their monthly Non-Farm Payroll numbers, and this was a huge one!

The US Bureau of Labor Statistics reported today that the total non-farm payroll employment rose by 943,000 in July, and the unemployment rate declined by 0.5% to 5.4%. Notable job gains occurred in local government education, leisure and hospitality, and professional and business services.

Employment Change

Unemployment Rate

Average Hourly Earnings

The USD found fresh bidding interest in the wake of a strong US employment report for July. Non-farm payroll came in at 943K for July, which is better than the 870K the market was expecting and an improvement on the previous month's 938K. The US unemployment rate fell to 5.4% in July, beating analyst expectations for a decline to 5.7% from June's 5.9%.

The US average hourly earnings for all employees on private nonfarm payrolls increased by 11 cents to $30.54, following increases in the prior 3 months. Average hourly earnings for private-sector production and nonsupervisory employees also rose by 11 cents in July to $25.83. The data for recent months suggest that the rising demand for the labour associated with the recovery from the pandemic may have put upward pressure on wages.

The Fed should feel pleased with the pace of the recovery in the labour market. Wages are rising and house prices are booming, so it will become increasingly difficult to justify the very loose stance of monetary policy. Financial markets should be prepared for more communication in a gradual tapering in bond purchases in the fourth quarter.

Will Jobs Gains Prompt the Fed to Ease Stimulus?

The stronger rise in non-farm payrolls and the upwards revision to previous months' gains indicates that employment growth has shifted into a higher gear and that the drag on hiring from labour shortage is easing. This suggests that economic growth may be holding up better than we had feared and leaves open the possibility of Fed Chair Powell dropping a stronger hint that tapering is on the way.

However, some argue that still with 5.7 million fewer Americans employed than before the pandemic, it's too early to contemplate tightening policy or to pull back on the reins of fiscal policy. Instead, policymakers should fix their gaze on a full recovery and on raising US economic productivity for years to come through significant infrastructure investments.

We know the Fed is now using employment as their primary mandate for policymaking. Stay tuned into the upcoming FOMC events where we will see whether they will hint tapering soon.

Impact on XAU/USD:

Gold prices did not stand a chance following this very strong non-farm payroll report, falling 2.2% today. This employment report was terrible for gold as it did not support needs for safe havens and given a good chunk of the wage gains is from low-paying jobs, it did not do much for driving inflation hedges.

It's likely we could see further downwards pressure as Fed tapering bets grow following this strong NFP report. Price has once again gone underneath the long-term channel's top and is actually hovering around a key horizontal level at 1765.

If price will use this level as support, we could see price reach lows at the bullish order block at around 1740, however, if price breaks this zone we could see it tumble towards the psychological 1700 level.

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