Forex Preview: Australia’s Jobs Report (Aug)

G’day, forex mates! The Australian Bureau of Statistics (ABS) will be releasing yet another jobs report tomorrow (September 15, 1:30 am GMT), so chances are good that Aussie pairs will be getting a volatility infusion. And if you’re a news trader or a volatility hunter, then you better gear up by reading up another edition of my Forex Preview.

What happened last time?

  • July employment change: +26.2K vs. +10.0K expected
  • June employment change: revised higher from +7.9K to +10.8K
  • Jobless rate: downtick to 5.7% vs. steady at 5.8% expected
  • Labor force participation rate: edged higher from 64.86% to to 64.88%

In my previous Forex Preview for Australia’s July jobs report, I noted that “the leading labor indicators are mixed, but they lean more towards stagnant or weak employment growth, so a downside surprise seems possible.” However, I also warned that “opening preemptive positions ahead of the jobs report is generally not recommended because … the ABS is prone to revisions and printing numbers that are way off expectations.”

Well, the reading for July was way off expectations all right, since it came in better-than-expected at 26.2K. We also got a revision, since the previous reading for June was upgraded from 7.9K to 10.8K.

Aside from the larger-than-expected net increase in employment, another positive component was the downtick in the jobless rate from 5.8% to 5.7%. And as I said in my Economic Snapshot for Australia, it was a healthy downtick since the number of unemployed people fell by 5.5K while the labor force participation rate edged higher from 64.86% to to 64.88%.

Given all that, it was no wonder that the Aussie got bought up across the board, as you can see on the chart below.

AUD/USD: 15-Minute Forex Chart

AUD/USD: 15-Minute Forex Chart

However, there was no follow-through buying. Heck, the Aussie even tanked across the board shortly after the initial jump. What’s up with that? Well, digging through the details of the jobs report reveals that the net gain in employment was due to the 71.6K increase in part-time jobs, which was partially offset by the 45.4K decrease in full-time jobs. The large loss in full-time jobs is bad enough, but it get even worse if you also consider that it’s the largest loss of full-time jobs in 33 months.

What is the market expecting this time?

  • Employment change: +15.0K expected vs. +26.2K previous
  • Jobless rate: steady at 5.7% expected

For the month of August, most economists are saying that Australia will see a net increase of 15.0K jobs, which is obviously smaller than July’s net gains of 26.2K jobs. The jobless rate, meanwhile, is expected to hold steady at 5.7%.

So, what are the leading labor indicators saying?

AIG’s performance of services index (PSI) plunged from an 11-month high of 53.9 to a 21-month low of 45.0 in August.Likewise, the employment index dropped from 50.0 to 43.5. The reading is below the 50.0 stagnation level, so there was apparently some job shedding in the service sector. Not only that, the reading is also the poorest reading since April 2009, “reflecting the slower growth in job vacancies, employment and work hours that has been evident in ABS and other labour market data in 2016.”

Next, AIG’s performance of manufacturing index (PMI) slumped from 56.4 to a 14-month low of 46.9. And the employment index slumped just as hard, from 56.5 to 44.6. Looks like there was some job shedding in the manufacturing sector as well.

As for we have AIG’s performance of construction index (PCI), it also deteriorated from 51.6 to a five-month low of 46.6 in August. The employment index also suffered, falling from 52.2 to 47.6.

Overall, the leading labor indicators are saying that employment grew at a slower pace or even contracted in August, so the consensus reading seems about right, with probability skewed more towards the downside.

Do note, however, that seasonal adjustments tend to bump up the actual reading for August:

Historical August Jobs: Unadjusted vs. Adjusted

But that doesn’t immediately mean that the actual reading always beats expectations:

Historical August Jobs: Expected vs. Actual

As usual, a better-than-expected reading for net employment change usually triggers a quick rally as a knee-jerk reaction while missing expectations usually causes a quick sell-off. For follow-through buying or selling, you need to consider whether the job gains were due to part-time or full-time employment, with the loss of full-time jobs being usually viewed as bearish for the Aussie. Other than that, keep an eye on commodities and overall risk sentiment as well.

And again, always keep in mind that opening preemptive positions ahead of this top-tier event is not recommended because the ABS is prone to revisions and releasing numbers that are way off expectations.

 


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