Forex Preview: Australia’s Jobs Report (Feb)

G’day, forex mates! The U.K. ain’t the only one releasing a jobs report this week since Australia will be releasing its own jobs report, too (Mach 17, 1:30 am GMT-DST on). This event usually generates a knee-jerk reaction that short-term traders can exploit, so if you’re planning to trade this event and need to get up to speed, then check out my Forex Preview.

What happened last time?

  • Employment change: -7.9.0K vs. +13.0K expected, -0.8K previous
  • Jobless rate: 6.0% vs. steady at 5.8% expected
  • Labor force participation rate: steady at 65.2%

I warned in my previous forex trading guide that “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.” And I was pretty much right on the money on that one since Australia’s jobs report for the January period was a disaster.

Specifically, Australia’s economy lost 7.9K jobs instead of gaining 13.0K as expected, which was enough to push the jobless rate higher from 5.8% to 6.0%. The details of the jobs report also showed that full-time jobs were the main casualties, with the loss of 40.6K jobs, which is pretty bad since full-time jobs generally offer better pay and security, so the losses may hurt consumer confidence and spending down the road. Ouch! Part-time jobs helped to ease the pain, however, partially offsetting the loss in full-time jobs with a net gain of around 32.7K.

On a more slightly upbeat note, the labor force participation rate held steady at 65.2% so blokes and sheilas aren’t discouraged yet. In addition, the previous reading for employment changed was revised to show a net loss of 0.8K jobs, which is slightly better than the original loss of 1.0K jobs.

Overall, the jobs report was pretty bad, though, so forex traders dumped the Aussie across the board as a knee-jerk reaction. There was very little follow-through selling action, however, probably because of soaring iron ore prices and the prevalence of risk appetite at the time, which likely kept the Aussie supported. And for the newbie forex traders out there who don’t know what iron ore has to do with the Aussie, just know that iron ore is one of Australia’s major commodity exports, so higher iron prices are good for Australian companies, and thus, Australia and the Aussie dollar.

AUD/USD: 15-Minute Forex Chart

AUD/USD: 15-Minute Forex Chart

What can forex traders expect this time?

  • Employment change: +13.5K expected vs. -7.9K previous
  • Jobless rate: expected to hold steady at 6.0%

For tomorrow’s February period jobs report, forex traders and market analysts expect that Australia will add 13.5K jobs to its economy, but the jobless rate is expected to hold steady. Cool, but what do the leading labor indicators say?

Well, ANZ’s jobs advertisement survey saw a 1.2% contraction in total jobs ads during February (+0.9% previous), which “may reflect some caution on behalf of businesses,” according to ANZ Chief Economist Warren Hogan.

AIG’s performance of services index (PSI) for Australia jumped by 3.4 points to 51.8 in February, but the employment index printed a 47.7 figure, so employment in Australia’s service sector is still contracting, albeit at a slightly slower pace when compared to the previous month’s 47.2 reading.

AIG’s performance of manufacturing index (PMI), meanwhile, increased by 2.0 points to 53.5 in February, but the manufacturing sector is in the same boat as the service sector given that the employment index for the manufacturing sector was still below the 50.0 neutral level at 47.4. The employment index did improve a bit relative to the previous month’s 47.1 figure, however.

Moving on, AIG’s performance of construction index (PCI) stumbled a bit from 46.3 to 46.1 during the February period, but the employment index drastically fell by 5.1 points to 46.3, which is the first time in six months that employment contracted in the labor intensive construction industry.

Finally, the employment index of the National Australia Bank’s (NAB) Monthly Business Survey moved back into positive territory at 1.0 point (-1.0 point previous), but commentary from the survey report noted that “it still suggests softer employment growth than the official labour market statistics.”

Overall, the leading labor indicators seem to paint a somewhat mixed picture, but they are skewed slightly towards another potential downside surprise, so Aussie bulls should keep their guard up.

Also, keep in mind that a downside surprise usually triggers a quick sell-off while an upside surprise usually causes the Aussie to rally for a bit. But for longer-term plays, make sure to keep an eye on the prevailing risk sentiment and commodities price action since they can boost or cap the Aussie’s forex price action, with the Aussie’s price action after the January period jobs report was released being a good example.