Nonfarm Payrolls (NFP)

The Nonfarm Payrolls (NFP) report is arguably one of the biggest market movers in the Forex. The NFP figure can influence the decisions of the Federal Reserve (Fed) by providing a measure of how successfully the Fed is meeting its mandate of fostering full employment and 2% inflation.

A relatively high NFP figure means more people are in employment, earning more money and therefore probably spending more. A relatively low Nonfarm Payrolls' result, on the either hand, could mean people are struggling to find work.

The Fed will typically raise interest rates to combat high inflation triggered by low unemployment and lower them to stimulate a stagnant labor market.

Nonfarm Payrolls generally have a positive correlation with the US Dollar. This means when payrolls' figures come out higher-than-expected the USD tends to rally and vice versa when they are lower.

NFPs influence the US Dollar by virtue of their impact on inflation, monetary policy expectations and interest rates. A higher NFP usually means the Federal Reserve will be more tight in its monetary policy, supporting the USD.

Nonfarm Payrolls are generally negatively correlated with the price of Gold. This means a higher-than-expected payroll figure will have a depressing effect on the Gold price and vice versa.

Higher NFP generally has a positive effect on the value of the USD, and like most major commodities Gold is priced in US Dollars. If the USD gains in value, therefore, it requires less Dollars to buy an ounce of Gold.

Also, higher interest rates (typically helped higher NFPs) also lessen the attractiveness of Gold as an investment compared to staying in cash, where the money will at least earn interest.

Those who trade NFP releases base their advice on previous preparation and some fundamental research. The elaboration of some macroeconomic analysis is essential for successful trading.

This research includes averages of past headline NFP numbers, Weekly Jobless Claims, ISM reports, or other employment data published earlier such as ADP, JOLTS, or the Challenger report.

Nonfarm Payrolls is only one component within a bigger jobs report and the data can be overshadowed by the other components.

At times, when NFP comes out higher than forecast, but the Average Weekly Earnings is lower than expected, the market has ignored the potentially inflationary effect of the headline result and interpreted the fall in earnings as deflationary.

The Participation Rate and the Average Weekly Hours components can also influence the market reaction, but to a much lesser extent.