Forex Preview: Australia’s Jobs Report (Apr)

G’day, forex mates! The U.K. ain’t the only one releasing its jobs report this week since Australia will be releasing its April jobs report tomorrow (May 19, 1:30 am GMT). And if you’re planning to trade this top-tier event, then this Forex Preview can help you get up to speed on what happened last time and what you can expect for the upcoming report.

What happened last time?

  • Employment change: +26.1K vs. +17.0K expected, -0.7K previous
  • Jobless rate: 5.7% vs. 5.9% expected, 5.8% previous
  • Labor force participation rate: held steady at 64.9% vs. uptick to 65.0% expected

I concluded in my Forex Preview for Australia’s March jobs report, that “the leading labor indicators are painting another mixed picture, but they are now more skewed towards a potential upside surprise.” And we did get an upside surprise since Australia’s economy saw a net increase of 26.1K jobs when only a 17.0K increase was expected.

On a slightly more downbeat note, the labor force participation rate held steady at 64.9% instead of ticking higher to 65.0%, but at least the larger-than-expected net increase in jobs was enough to cause the jobless rate to tick lower from 5.8% to 5.7%, which is awesome because it’s the lowest reading since September 2013.

The details of the March jobs report weren’t as upbeat, however, because the larger-than-expected net increase in jobs was due to the 34.9K increase in part-time jobs, which were able to partially offset the loss of 8.8K full-time jobs. This is not a very upbeat detail because part-time jobs offer little job security and are generally paid lower to boot.

Moving on, the seasonally-adjusted monthly hours worked dropped by 17.5 million hours. This is the second consecutive month that monthly hours worked has dropped, which implies lower productivity and lower pay. Incidentally, the RBA noted in its May 3 monetary policy statement and minutes of the May 3 monetary policy meeting that persistently low labor costs were one of their considerations for their “surprise” rate cut.

Getting back on topic, the jobs report looked fantastic on the surface but easily loses some of its awesomeness when you dig deeper into the details of the report, so it was mixed overall. As a result, the initial knee-jerk reaction to the jobs report was to send the Aussie higher before pulling it back down again. Most forex traders were apparently not too bothered by the implications of the negative details of the jobs report, though, since there was significant follow-through buying of the Aussie across the board after the initial jostling, and despite a pullback in iron ore prices at the time.

AUD/USD 15-minute Forex Chart

AUD/USD 15-minute Forex Chart

What can forex traders expect this time?

  • Employment change: +12.0K expected vs. +26.1K previous
  • Jobless rate: uptick to 5.8% vs. 5.7% previous
  • Labor force participation rate: hold steady at 64.9% expected

For tomorrow’s April jobs report, most economists and forex traders expect a net increase in employment of only 12.0K, which is a tad lower than the previous reading. Also, the jobless rate is expected to tick higher to 5.8% while the labor force participation rate is expected to hold steady at 64.9%.

So, what do the leading labor indicators say?

Well, ANZ’s jobs advertisement survey for April, reported a 0.8% decrease in total job ads. According to Felicity Emmett, ANZ’s Head of Australian Economics, the fewer job ads could “reflect some uncertainty by firms around the near term outlook … or a general softening of the economic outlook.”

Moving on, AIG’s performance of services index (PSI) for Australia climbed higher to 49.7 from 49.5, and the employment index followed suit, increasing from 47.8 to 48.1. This means that employment in the service sector was still contracting, albeit at a slightly slower rate. However, the health and community services sub-sector, which employs around 13% of Australia’s workforce, continued to expand in April. Meanwhile, the property and business services sub-sector, which employs about 14% of Australia’s workforce, managed to stabilize in April. Whether the contraction/stagnation in other sub-sectors will be able to overwhelm the developments from these two labor-intensive sub-sectors remains to be seen, though.

Next up is AIG’s performance of manufacturing index (PMI) and it printed a large drop from 58.1 to 53.4. The employment index for the manufacturing sector also suffered, slumping from 53.2 to 49.0, which means that employment contracted a little bit.

As for AIG’s performance of construction index (PCI), it jumped from 45.2 to 50.8 in April. The employment index was even more impressive since it surged from a 15-month low of 41.7 to 54.5, which is the highest reading in 2016 and breaks two straight months of contraction to boot.

Finally, the employment index of the National Australia Bank’s (NAB) Monthly Business Survey held steady at 4.0 points, which means another round of job gains, And according to commentary from the survey report, the current reading “hints at an annual job creation rate of around 220k (close to 18k per month) in coming months.”

Overall, the leading labor indicators are painting yet another mixed picture, but they are also leaning towards another potential upside surprise.

As usual, keep in mind that better-than-expected readings generally 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.