Forex Trading Guide: Australian Jobs Release

What exactly did RBA Governor Stevens mean when he said that hiring is unusually volatile in Australia? Perhaps the upcoming jobs release could shed more light on labor market trends and how these could affect AUD forex price action. Let’s go through our usual routine in this Forex Trading Guide, shall we?

What is this report all about?

The Australian jobs report has two main parts: the employment change figure and the jobless rate. As its name suggests, the employment change figure reflects the change in the number of employed people from the previous month and is indicative of job creation in that period. The jobless rate is the percentage of the labor force that is unemployed and actively seeking employment.

This economic report is important because the state of a country’s labor market typically dictates how consumer spending and overall growth might fare. After all, a stable jobs situation helps boost financial confidence, which then encourages people to spend instead of keeping their hands in their pockets.

How did the previous releases turn out?

As the latest RBA statement noted, labor market trends have been volatile lately since Australia has seen a fair share of positive and negative readings in the past few months.

The country has printed three months’ worth of better than expected employment change figures since February then saw a sudden 5.1K drop in hiring for May, followed by another stronger than expected reading in June. Employment fell by 4.1K in July then rebounded by an impressive 121K in August.

The jobless rate has held steady at 5.8% from March to May then jumped to 6.4% in July, before sliding down to 6.1% in August. Revisions to past data have also been partly responsible for these huge swings in the jobless rate.

What is expected this time?

For the month of September, another decline in hiring is expected, with the employment change report likely to show a -29.6K reading. This might be enough to push the jobless rate up from 6.1% to 6.2% for the month.

Apart from revisions to previous data, other components of the jobs release might also draw attention. In particular, the participation rate could provide more clues on how the labor market is faring since it shows whether or not more people left the labor force and gave up looking for full-time work. Wage growth indicators could be closely watched, too.

How might the Aussie react?

AUD/USD generally reacts strongly to the headline figures, with stronger than expected data likely to spur a rally and weaker than expected readings usually resulting to a selloff. Past price action suggests that the initial reaction lasts by a hundred pips at most, before it is reversed in the next forex trading sessions.

AUD/USD 15-min Forex Chart

AUD/USD 15-min Forex Chart

In the previous release, AUD/USD had a very short-lived reaction to the headline figures and ended up selling off for the rest of the trading day. It looks like most forex market participants just weren’t buying the surprisingly upbeat jobs figures, as many attributed the gains to a change in methodology for measuring employment change.

With the Land Down Under likely to print a negative reading for September and with most traders still doubting the credibility of the latest jobs reports, it seems that the path of least resistance for AUD/USD is to the downside. Do you think the pair will resume its selloff soon?