Forex Preview: Australia’s Jobs Report (June)

G’day, forex mates! There’s a better-than-average chance that the Aussie is gonna get a volatility infusion tomorrow because the ABS will be releasing its monthly jobs report (July 14, 1:30 am GMT). And if you’re planning to trade this top-tier event, then get up to speed with another edition of my Forex Preview.

What happened last time?

  • Employment change: +17.9K expected vs. +15.0K expected, +0.8K previous
  • Jobless rate: steady at 5.7% as expected
  • Labor force participation rate: steady at 64.8% vs. uptick to 64.9% expected

In my previous Forex Preview for Australia’a May jobs report, I concluded that “the leading labor indicators are pointing to a possible slowdown in employment growth, so it seems chance is heavily skewed towards a potential downside surprise.”

Unfortunately for us (but fortunately for Australia), we didn’t get one. In fact, the Australian Bureau of Statistics (ABS) gave us an upside surprise instead, with Australia generating 17.9K jobs in May, which is more than the expected 15.0K increase. We did get a downside surprise for the previous reading, however, since it was downgraded significantly from 10.8K to a paltry 0.8K, , due to full-time job losses in May being revised from 9.3K to a much higher 18.2K loss.

Digging deeper into the details of the jobs report, the better-than-expected reading wasn’t all that good after all, since growth in full-time jobs was stagnant, which means that the 17.9K increase all came from part-time jobs, and part-time jobs are less desirable because they generally offer less security and pay less to boot.

Looking at the other labor indicators, Australia’s seasonally-adjusted jobless rate held steady at 5.7%, which is a multi-year low while the labor force participation rate held steady at the 10-month low of 64.8% instead of ticking higher to 64.9%, which is bad because many blokes and sheilas are apparently not encouraged enough to join or rejoin the labor market.

The only silver lining was was that the seasonally-adjusted monthly hours worked increased by 1.71% to 27.7 million hours, thereby ending three straight months of decreases. Also, this means higher earnings and possibly higher productivity.

Forex traders initially reacted to the better-than-expected reading for employment change by buying up the Aussie against almost all of its peers. They then began dumping it hard across the board after taking a closer look at the details and seeing that the jobs report was not so good after all.

AUD/USD 15-Minute Forex Chart

AUD/USD: 15-Minute Forex Chart

What is the market expecting this time?

  • Employment change: +10.0K expected vs. +17.9K previous
  • Jobless rate: uptick to 5.8% from 5.7% expected
  • Labor force participation rate: steady at 64.8% expected

For the upcoming jobs report, the general consensus among economists is that Australian will see a net increase in employment of around 10K, which is fewer than the previous month’s net increase of 17.9K. Also, the jobless rate is expected to worsen from 5.7% to 5.8% while labor force participation rate is not expected to pick up from the multi-month low at 64.8%. The overall expectation, therefore, is that Australia’s jobs data will deteriorate.

Okay, but what do our leading labor indicators have to say?

Well, ANZ’s jobs advertisement survey for the month of June reported that job advertisement continued to increase, albeit at a slower pace (0.5% vs. 2.2% previous). The slower increase in job advertisements “could partly reflect some uncertainty by firms around the near-term outlook,” according to commentary from the report.

Moving on, AIG’s performance of services index (PSI) eased a bit from 51.5 to 51.3 in June, but the the employment index jumped by 4 points from 49.1 to 53.1, so employment in the service sector finally went above the 50.0 stagnation level for the first time since August 2015. However, the health and community services industry and the property and business services industry, which account for about 27% of Australia’s workforce, were both slightly contracting, but it remains to be seen of the gains from other industries would be able to offset the losses from these two labor-intensive industries.

Next, AIG’s performance of manufacturing index (PMI) climbed from 51.0 to 51.8 while the employment index for the manufacturing sector climbed at a faster pace from 45.6 to 47.9, which means that the job shedding in the manufacturing sector slowed down.

After that, we have AIG’s performance of construction index (PCI), and it charged higher to 53.2 from 46.7, and the employment index charged higher with it, jumping from 49.0 to 53.9.

Finally, the employment index for National Australia Bank’s (NAB) Monthly Business Survey advanced from 1.0 index point to 4.0 index points. According to commentary from the NAB survey, this reading “hints at an annual job creation rate of around 212k (around 18k per month) in coming months, which would be more than sufficient to lower the unemployment rate further.”

Overall, the leading labor indicators seem to be pointing to a pick up in employment, so probability is skewed towards a possible upside surprise.

As usual, keep in mind that better-than-expected readings usually trigger a quick rally while worse-than-expected readings usually cause a quick selloff. Preemptive positioning ahead of the jobs report is not recommended, however, since ABS is prone to revisions and printing numbers that are way off expectations, so much so that some economists are saying that the ABS is unreliable. Even ABS Head David Kalisch said last year that people shouldn’t be too serious with the numbers. Anyhow, for follow-through selling or buying, you need to dig through the details of the jobs report and you also need to keep an eye on both risk sentiment and commodities since they also drive the higher-yielding Aussie’s price action.

 


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  • Blaise Kinyua

    I have been following your analysis for some time and most of the time you are right. For sure there was about an uptick of around 40 pips. The employment change was slightly lower than expected but I guess the other factors e.g. the upward revision and other factors you’ve mentioned caused the uptick.

    • Heya Blaise! Sorry for the late reply. Anyhow, the small spike higher was due to both the revision and the current reading. The upward revision was due to a 2.5K increase in full-time jobs, and as wrote on this post, full-time employment was originally stagnant.

      And while the current reading failed to meet expectations, the net gain in jobs was due to a net loss of 30.6K part-time jobs, which was partially offset by the increase of around 38.4K full-time jobs.

      Forex traders were more focused on the net gain of full-time jobs for the current reading as well as the previous reading since the Australian economy had been losing full-time jobs.

      • Blaise Kinyua

        Where do you get the additional info (other than headline info presented by say ForexFactory) during trading time?

        And will you do a write up on AUD Monetary Policy Minutes?
        I’m asking about the AUD minutes because as you may have noticed, I have been asking a lot of questions esp on fundamentals and sentimental analysis for a whole year as I wanted to learn to trade the news.
        I went through the whole school of babypips and I think I will be more of a fundamental/sentiment trader.

        Since I have a day job and I am in Kenya GMT+3 (+2 in BST), the best I can do is trade Asian session news.

        I started last evening selling the weak NZD coz of weaker than expected CPI (and following last weeks RBNZ surprise announcement) easily and with informed decision sold it.

        All greatly thanks to you and the other guy, Pip Diddy.

        Thanks.

        • Hi Blaise!

          I get the additional info directly from the jobs report. If you’re using forexfactory.com, there’s a little folder icon thingy next to the name of the economic report/event and under the “details” column. If you click on it, the source is usually under “related stories” but if it’s not there, click the “latest release” link under “specs”. I’ve attached a pic below for easier reference.

          Once you’ve done that, you’ll get to the ABS webpage where some of the details are laid out. If you want even more details, click on the “downloads” tab and you’ll have lots to choose from, although I only download the pdf file there, since that’s the actual comprehensive jobs report.

          Here’s the direct link to the most recent one:
          http://www.ausstats.abs.gov.au/ausstats/meisubs.nsf/0/702ADCA7FC70AE7BCA257FEF007D96B4/$File/62020_jun%202016.pdf

          As for the RBA minutes, yeah, I already posted a write-up on it.

          Here’s the link.
          http://www.babypips.com/blogs/piponomics/forex-rba-minutes-20160720.html

          And happy to know that Pip Diddy and I were able to help you out.

          • Blaise Kinyua

            Thank you.

            Yes, following your blogs regularly makes it easier to ‘digest’ the info once out.

            Before I was just following your blogs (for a year now) and just viewing the charts on MT4 during the events. And most of the time I could see the price action would go with your analysis.

            So this weekend I thought it was time for me to open a demo account and actually trade. I bought EURNZD after weaker than expected New Zealand CPI and got +65 pips.:)

            Again thanks. Tell Pip Diddy I said thanks. 🙂

          • You’re welcome! And will do!

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