Forex Trading Guide: Australian Jobs Report (Jan)

G’day, forex mates! If you’re looking for a potential catalyst for the Aussie, then look no further since Australia’s jobs report will be released tomorrow (Feb. 18, 12:30 am GMT). If ya need a quick review on what happened last time, as well as what to expect for the upcoming report, then make sure to read this edition of my Forex Trading Guide.

Why is this report important?

The Australian Bureau of Statistics (ABS) releases a monthly report on the how the Australian labor market is faring. This jobs report is of vital importance to both forex traders and decision makers alike because of the positive ripple effect that a healthy labor market has on the whole economy.

Speaking of decision makers, RBA officials noted in their meeting minutes and statement on monetary policy that strong employment growth in 2015 was one of the factors why they kept rates on hold. RBA officials also stated that they expect increasing employment will continue fueling domestic consumption. In short, rate cut expectations are also closely tied to how the labor market performs.

What happened last time?

  • Employment change: -1.0K vs. -10.0K expected, +74.9K previous
  • Jobless rate: 5.8% vs. 5.9% expected, 5.8% previous
  • Labor force participation rate: 65.1% vs. 65.3% previous

I noted in my previous forex trading guide that “the leading labor indicators seem to be skewed towards an upside surprise,” but I also asked y’all to “consider that a large chunk of the previous month’s job gains were from part-time employment, so downgrades to the previous reading is within the realm of possibility.”

Well, I was half right on that one since employment only registered a net decrease of 1.0K jobs instead of the expected 10.0K decrease, but at the same time the previous reading was upgraded from +71.4K to +74.9K. However, I was kinda right in worrying that the large increase in part-time jobs would have a negative effect on the jobs report since the 1.0K net decrease in employment during the December period was due to an 18.6K reduction in part-time jobs versus a 17.6K increase in full-time jobs.

The slight decrease in net employment didn’t seem to bother the jobless rate since it held steady at 5.8%, but a closer look at the details of the report shows that the labor force participation rate dropped from 65.3% to 65.1%, which is rather gloomy since that implies that some people just gave up on looking for jobs altogether.

Overall, it wasn’t exactly an awesome jobs report, but it was relatively positive so many forex traders began to buy up the Aussie. However, risk aversion was the dominant sentiment at the time, so Aussie bulls had a hard time pushing the Aussie higher against its forex rivals, with the exception of the higher-yielding Kiwi, which was also suffering from the general aversion to risk.

Fortunately for the Aussie bulls, risk appetite made a comeback during the U.S. session, finally allowing forex traders to push the Aussie higher against all its forex rivals.

AUD/USD 15-minute Forex Chart

AUD/USD 15-minute Forex Chart

What can forex traders expect this time?

  • Employment change: +13.0K expected vs. -1.0K previous
  • Jobless rate: expected to hold steady at 5.8%

For the January employment situation, the consensus among forex traders is that net employment will increase by 13.0K, but the jobless rate is expected to hold steady at 5.8%.

Browsing through some of the available leading indicators, ANZ’s job advertisement survey reported a 1.0% increase in job ads during the January period after stumbling by 0.1% previously. ANZ Chief Economist Warren Hogan also commented that jobs ads were 10.8% higher in annual terms and that he expects “moderate employment gains in early 2016 enough at least to keep the unemployment rate stable.”

Moving on, AIG’s performance of services index (PSI) advanced from 46.3 to 48.4 during the December period, which means that the contraction in the sector slowed a bit, but the employment sub-index showed a deeper contraction from 48.6 to 47.2.

Next, AIG’s performance of manufacturing index (PMI), reported that the expansion slowed down slightly from 51.9 to 51.4, but the details of the report show that the employment sub-index printed suddenly dropped from 52.4 to 47.1, which is bad news for the sector and will likely have a negative effect on the upcoming jobs report.

As for, AIG’s performance of construction index (PCI), it contracted some more, printing a 46.3 reading (46.8 previous), but its employment index printed a faster expansion (51.4 vs. 50.1 previous).

Finally, the National Australia Bank (NAB) highlighted in its Monthly Business Survey that ” Employment conditions were the most disappointing, dropping back into negative territory, which is a continuation of the stark divergence from very strong employment outcomes reported by the ABS.”

Overall, the leading labor indicators seem to lean more towards a potential downside surprise, so forex traders who are bullish on the Aussie should be extra careful.

Also, note that the Aussie’s forex price action in the past few months has been sensitive to risk sentiment, with the Aussie’s forex price action during the previous jobs report being a good example of that. Make sure to pay attention to the prevailing risk sentiment as well, especially if you have longer-term plays in mind.