Forex Trading Guide: Australia’s May Jobs Report

G’day mates! Australia’s jobs data report is scheduled for release this Thursday (June 11). So grab your socks, hats, and koala plushies! It’s time to saddle up for my Forex Trading Guide on Australia’s May Jobs Report.

What is this report about?

For newbie forex traders out there (and veterans who need a refresher), the Australian Bureau of Statistics’ Labour Force report quantifies various labor indicators for the Australian labor market. Forex traders generally focus on three indicators: (1) the employment change, (2) the jobless rate, and (3) the labor force participation rate.

The employment change measures the change in the number of employed people during the reporting period. The jobless rate or unemployment rate is the percentage of the total labor force that have no jobs but are willing to work and are looking for one. As for the labor force participation rate, it is the percentage of the working-age population who have jobs or are looking for one.

Jobs data are important because a healthy labor market usually leads to higher consumer confidence and consumer spending, and thus, a healthier economy overall.

What happened the last time?

The April Labour Force report showed that the number of people employed decreased by 2.9K, which was a very severe disappointment when compared to expectations for a 4.0K to 4.5K increase, and a far cry from the previous month’s 48.1K increase. The jobless rate also ticked up to 6.2% from 6.1%, and the labor force participation rate remained flat at 64.8%, although a closer look shows that it actually declined slightly from 64.79% to 64.76%.

That’s not the end of it, though. The number of full-time jobs dropped by 21.9K, but was partially offset by a 19.K increase in part-time jobs. Still, that’s a bad sign since full-time jobs are more stable than part-time jobs and full-timers generally get paid more too.

What is expected this time?

The consensus is that the jobless rate will remain flat at 6.2% while the employment change is expected to improve with 15K people employed. ANZ job advertisements, a leading indicator for employment, wasn’t really all that promising, since the actual read was essentially flat at 0.0% (2.5% previous).

Do note that the Reserve Bank of Australia (RBA) decided not to cut rates back in June 2, opting to stay in a wait-and-see mode. The meeting minutes aren’t coming out until June 16, but the previous meeting minutes explained that the May 5 rate cut from 2.25% to 2.00% was meant to encourage “non-mining business investment” which would ultimately lead to “stronger labour market conditions.” So most forex traders would be keeping a close eye on this report and its individual data points because of their potential impact on future monetary policy, not to mention their own intrinsic value for gauging the overall health of the economy.

How could AUD/USD react?

Generally, AUD/USD doesn’t react much or has a lot of volatility but no overall direction when the report is released. But it does tend to find a direction a couple of hours after the report. Sometimes, there’s even some movement a couple of hours before the report is released, usually going against expectations. Let’s take a look at some examples.

For the May 7 jobs report, the jobless rate was within expectations, but the employment change was expected to decline very significantly versus the previous reading. The actual reading was worse than expected, which wasn’t really a surprise since the market was already pessimistic given that the RBA cut rates a couple of days earlier. And because of that rate cut, forex traders were already betting on dismal results before the report even came out (one of those instances where the directional movement ahead of a report is usually against expectations).

AUD/USD May Forex Chart

AUD/USD May Forex Chart

The April 16 jobs report showed a better-than-expected reading for both the employment change and the jobless rate data, with expectations that the employment change will only be 14.9K versus the previous 42.9K.  So it was a complete surprise when the actual reading was 37.7K, a significant improvement over the consensus and only a tad lower than the previous reading. As a result, AUD/USD jumped higher immediately after the report was released. Oh, and do you see the upward movement ahead of the report? This was an example of directional movement against expectations because the consensus was that the report will be dismal.

AUD/USD April Forex Chart

AUD/USD April Forex Chart

The March 12 report was good overall with the jobless rate being better than expected, while the employment change was roughly within expectations at 15.6K (still an improvement over the previous reading of -14.6K). Do note the previous down move. This was another textbook example of directional movement against expectations since the jobless rate was expected to remain flat while employment change was expected to improve, as already stated.

AUD/USD March Forex Chart

AUD/USD March Forex Chart

So what’s the pattern here? Well, if the actual reading is within expectations, then forex traders shouldn’t really expect anything when the report comes out, but may want to measure the actual reading against the previous reading. And as already stated, the jobless rate is expected to remain flat while employment change is expected to improve, so if expectations do hold, we may potentially see AUD/USD moving higher. But since the increase is not really a lot, it’s possible that we may not see any movement at all, although we may see a move before the report is released, which is most likely going to be a down move. And just in case the actual readings are way better or worse than expectations, then we may see AUD/USD jumping up or falling down immediately after the report is released.

Also, just remember what I said about forex traders looking at the jobs data in terms of their potential effect on future monetary policy. What this means is that if we do see a surprise, it is quite possible that the move in response to that surprise will be a big one. Good luck!

 

  • ForExchange

    Hi Forex Gump,

    I do not know how this one turns out but congrats on your article yesterday for the decrease of the NZD interest rate. You were right on the spot! Hope you also traded it 🙂

    FE

    • Yep, I did! A bit late but I’m riding this selloff nonetheless. Thanks for the positive feedback! Did you trade the NZD pairs you mentioned?

      • ForExchange

        Yes, I am almost at +1 000 pips with EURNZD, and I am doing ok with NZDJPY. The second one is however a weak vs weak currency setup which is not optimal in my opinion. I bought the Yen because it is at a historical low vs. NZD and a signal came to the downside. So even if it will move slowly, I believe the Yen will beat NZD too.

        Actually all of them will beat NZD I guess.

        FE

        • Woah, congratulations on that EURNZD long! Looks like NZDJPY has been breaking lower anyway, it’s a slow grind but I agree that most could beat NZD for now.