Forex Trading Guide: Australia’s Jobs Data (August)

G’day, forex mates! Ready to wrangle some pips off the Aussie, I reckon? Well, grab your socks and saddle up for another edition of my Forex Trading Guide.

This time, I’ll get ya up to speed on Australia’s jobs data for August, which is scheduled to come out on September 10 at around 1:30 am GMT or 2:30 am GMT, depending on whether you follow standard time or daylight savings time.

If you’re not sure, you can always check this awesome thread in our forums. And with that out of the way, let’s get this show on the fury road!

What is this report all about?

To all the newbie forex traders out there, employment reports provide a snapshot on the overall health of a country’s labor market. And knowing the current state of the labor market is important because a healthy, growing labor market acts as a leading indicator for a country’s overall economic activity and influences the level of consumer confidence and the strength of consumer spending in an economy. After all, you can’t really buy stuff or be confident in the economy if you can’t find a job, well, I guess unless you’re lucky enough to have a rich daddy or mommy to run to.

Anyhow, consumer spending is important to Australia because it helps to keep Australia’s economy afloat. Moreover, strong consumption levels also usually leads to higher inflation levels and, in the long run, better chances for a rate hike.

Regarding the specifics of the report, forex traders usually focus on three labor indicators: (1) the employment change or net increase/decrease in jobs, (2) the jobless rate, and (3) the labor force participation rate.

What happened last time?

The labor report for July was a mixed bag of nuts since the jobless rate unexpectedly climbed higher to 6.3% while the previous reading was revised higher from 6.0% to 6.1%. On the flip side, employment change saw a significantly better-than-expected net increase of around 38.5K jobs (10.2K expected, 7.0K previous). Wait, what? There was a net increase in jobs, but the jobless rate increased? What sorcery is this? The forex gods must be crazy! Well, it’s actually pretty simple if you take the time to dig around in the report.

Basically, employment increased by 38.5K to 11,797,300, with 12.4K people getting full-time jobs and 26.1K people getting part-time jobs, but the number of unemployed people also increased by 40.1K to 800,700. This increase in unemployed people was probably due to more working-age people joining/re-joining the active work force since the labor force participation rate climbed higher by 0.3% to 65.1%. And it just so happens that the Australian economy wasn’t able to absorb the influx of new workers. Pretty simple, yeah

What is expected by most forex traders?

This time around, forex traders are only expecting a net employment increase of 5.0K, which is significantly lower than the previous month’s 38.5K increase. Still, an increase is always better than a decrease. As for the jobless rate, it is expected to tick lower to 6.2% from 6.3%.

Other labor indicators seem to support an improvement in jobs data as well since AIG’s manufacturing PMI reading for August increased by 1.3 points to 51.7, with the employment sub-index increasing by 3.7 points to 51.3. AIG’s services PMI reading for August also increased by 1.5 points to 55.6, with the employment sub-index expanding by 0.8 points to 52.5.

ANZ’s job advertisement survey for August also saw a 1.0% increase (-0.5% previous), but ANZ’s chief economist, Warren Hogan, warned that “The trend measure however, suggests there has been a slowdown in growth since late last year.

How might the Aussie react?

Last time around, the jobs data were mixed, so forex traders also had a mixed knee-jerk reaction – they first sent the Aussie higher before pulling it back down as the jobless rate increase began to weigh-in.

AUD/USD 1-hour Forex Chart

AUD/USD 1-hour Forex Chart

There was very little seller follow-through across most Aussie pairs, though, probably because forex traders were still ecstatic that Australia’s retail sales volume grew by 0.7%, which is better than the expected 0.5% and previous reading of 0.4%. Forex traders were also loading up on the Aussie at the time because the RBA removed the phrase “Further [Aussie dollar] depreciation seems both likely and necessary” from their August 4 rate statement. In the end, the overall bullish sentiment on the Aussie at the time won out, sending most Aussie pairs higher.

This time around, the jobs data are expected to be mostly positive. True, the net increase in employment is expected to slow down, but forex traders would have probably priced that in already. In any case, if the actual readings are better-than-expected, then the knee-jerk reaction among forex traders is to buy up the Aussie. If the reverse is true, then forex traders usually go on a selling spree.

As for a potential follow-through, that would usually depend on the overall market sentiment for the Aussie. For now at least, it seems like forex traders are bullish on the Aussie due to the prevailing risk-on sentiment brought about by a broad rally across the global equities market, especially the Chinese equities market. Sentiment for the Aussie may also be affected by China’s CPI reading (1.9% expected, 1.6% previous) since it would be released simultaneously with Australia’s jobs data, so keep an eye on that too.