Forex Preview: Australia’s Jobs Report (Mar)

G’day, forex mates! We’ve got a likely catalyst for the Aussie coming up since Australia’s gonna be releasing its jobs report tomorrow (April 14, 2:30 am GMT). If you’re planning to trade this event and need to quickly get up to speed, then this Forex Preview is just for you.

What happened last time?

  • Employment change: +0.3K vs. +13.5K expected, -7.4K previous -7.9K
  • Jobless rate: dropped to 5.8% vs. hold steady at 6.0% expected
  • Labor force participation rate: slumped to 64.9% from 65.1%

In my previous Forex Preview for Australia’s February jobs report, I concluded that “the leading labor indicators seem to paint a somewhat mixed picture, but they are skewed slightly towards another potential downside surprise.”

Well, we did get a downside surprise alright since Australia’s economy was only able to add 0.3K jobs, which is substantially lower than the expected net increase of 13.5K jobs. What surprised me (and most forex traders for that matter), was that the jobless rate had a downside surprise as well, sliding down to 5.8% from 6.0%.

Wait, what? The net increase in employment was much smaller than was expected and yet the jobless rate dropped by a couple of ticks? What sorcery is this? Well, the most likely answer to that lies in the details of the February period jobs report.

To be more specific, we’re looking at the labor force participation rate and its slide from 65.1% to a five-month low of 64.9%, which implies that average blokes and sheilas are saying “I give up” and dropping out of the labor force.

There was a silver lining, though, since a net of 15.9K full-time jobs were created after January’s very dismal loss of 40.3K full-time jobs. The 15.6K loss in part-time employment was partially offsetting the gains in full-time jobs, though.

To summarize, the jobs report was mixed, but skewed more towards being negative overall since people dropping out of the labor force is not exactly a vote of confidence on the state of Australia’s economy. Some analysts think that the February jobs report was positive overall, however, reasoning that the drop in the labor force participation rate was just a statistical anomaly.

Anyhow, the knee-jerk reaction of most forex traders was to try and dump the Aussie when the mixed readings came out. Unfortunately for the Aussie bears, the selloff was very short-lived since iron ore was also staging a major rally at the time, thanks to the very dovish FOMC statement that weakened the Greenback, which made commodities relatively cheaper. The jobs report continued to weigh down on the Aussie, though, putting a cap on the Aussie’s gains. Heck, the Aussie even retreated across the board (except against the Greenback) when the London session rolled in.

AUD/USD: 15-minute Forex Chart

AUD/USD: 15-minute Forex Chart

What can forex traders expect this time?

  • Employment change: +17.0K expected vs. +0.3K previous
  • Jobless rate: expected to tick higher to 5.9% vs. 5.8% previous
  • Labor force participation rate: expected to tick higher to 65.0% from 64.9%

For Australia’s employment situation in March, the general consensus among forex traders and market analysts is that Australia will see a net increase of 17.0K jobs, but the jobless rate is expected to tick higher to 5.9% from 5.8% because the labor force participation rate is also expected to tick higher from 64.9% to 65.0%. And with that out of the way, what do the leading labor indicators say?

First up is ANZ’s jobs advertisement survey, which printed a very slight 0.2% increase in total job ads during March after February’s 1.2% contraction. According to ANZ Senior Economist Justin Fabo, “the recent run of softer job ads could partly reflect some caution on behalf of businesses amid heightened financial markets volatility and uncertainty about the global economic outlook.” However, Fabo also commented that ANZ still expects “jobs growth to maintain enough momentum over the coming six months to keep the unemployment rate within earshot of 5¾%.”

Next, AIG’s performance of services index (PSI) for Australia slumped to 49.5 from 51.8, but the employment index ticked higher from 47.7 to 47.8, which means that employment in Australia’s service sector continued to contract in March, albeit at a very slightly slower rate. However, the hospitality, health services, and recreational services sub-sectors, which are all labor-intensive industries, expanded faster in March, so it remains to be seen if the contraction/stagnation in other sub-sectors will be able to overpower their expansion.

Moving along, AIG’s performance of manufacturing index (PMI) jumped by 4.6 points to 58.1 in March. The employment index for the manufacturing sector also jumped from 47.4 to 53.2, which is the highest reading since June 2010.

AIG’s performance of construction index (PCI), meanwhile, sank a bit lower from 46.1 to 45.2 during the March period, but the employment index dropped substantially from 46.3 to a 15-month low of 41.7, indicating another round of stagnant employment and/or job shedding in the labor-intensive construction industry.

Finally, the employment index of the National Australia Bank’s (NAB) Monthly Business Survey climbed higher from a measly 1.0 point to 5.0 points in March, which is the highest reading since mid-2011. Commentary from the survey report was also pretty upbeat, saying that the current reading “points to annual job creation of around 220k (almost 19k per month) in coming months.”

Overall, the leading labor indicators are painting another mixed picture, but they are now more skewed towards a potential upside surprise.

Again, better-than-expected readings usually trigger a quick rally while worse-than-expected readings usually cause a quick selloff. For follow-through selling or buying, make sure to keep an eye on both risk sentiment and commodities, particularly iron ore, since iron ore has recently been a major driver for the Aussie’s forex price action.