Forex Markets Quiet as Investors Prepare for U.S. ADP Jobs Report

The Forex markets are relatively calm after Tuesday’s wild session. Some of this can be attributed to the firmer U.S. Dollar. Yesterday’s volatile price action was set off by a rate cut by the Reserve Bank of Australia. On Thursday, the Bank of England is also expected to cut rates and add more stimulus so the roller-coaster ride could start again before the end of the week.

September U.S. Dollar Index futures are trading at 95.145 early Wednesday, up 0.157 or 0.17%. The buying is being attributed to short-covering and position-squaring ahead of the U.S. ADP Non-Farm Employment Change report due out at 1215 GMT. It is expected to show the private sector added 170K jobs in July.

This report is important and should be a market mover because of the recent string of weak U.S. economic reports including second-quarter GDP, manufacturing PMI and personal income. A stronger-than-expected ADP number may convince traders that Friday’s U.S. Non-Farm Payrolls report will continue to show improvement in the U.S. labor market. This would breathe some life into a possible rate hike by the Fed in December. Currently, hope for a rate hike in 2016 is fading fast.

The USD/JPY trades nearly flat on Wednesday. The Forex pair closed at 100.951, up 0.069 or 0.06%. Yesterday, the Japanese Yen soared after the government released some of the details of its new stimulus package. Although the new plan was relatively large, it lacked the power that many investors felt was needed to revive the weak economy.

Early Wednesday, the Bank of Japan released the minutes of its June 15-16 policy meeting. The minutes essentially showed that members were concerned about the Brexit referendum that was set to take place on June 23, a week after the BoJ meeting.

“Some members added that it was necessary to carefully monitor the result of the referendum on the United Kingdom’s membership of the EU and subsequent financial and economic developments,” the minutes of the meeting showed.

The BoJ minutes also said, “One of these members commented that there were signs of a need for caution with respect to achieving the price stability target, such as weaker developments both in the year-on-year rate of increase in the CPI (less fresh food and energy) and in inflation expectation indicators.”

The AUD/USD and NZD/USD traded lower on Wednesday after a volatile session the day before. There were no major economic reports out of Australia and New Zealand after yesterday’s widely expected interest rate cut by the Reserve Bank of Australia triggered a volatile response from traders. On August 11, the Reserve Bank of New Zealand is expected to cut interest rates by 25-basis points.

Many traders switch their positions to commodities as expectation for further developments from central banks. Gold rose to 1364.72, crude oil dropped below $40 to 39.44 and coffee lose 1.86% to trade at 141.33.