Forex Trading Guide: Australian Jobs Report (Oct.)

G’day, forex mates! Are ya lookin’ to trade another jobs report? Well, you’re in luck since the U.K. ain’t the only economy releasing its jobs data this week – Australia’s also scheduled to release its jobs report this Thursday (Nov. 12, 12:30 am GMT), and I’ve got this here Forex Trading Guide to help get you up to speed.

Why is this report important?

The monthly jobs reports compiled by the Australian Bureau of Statistics (ABS) is of great importance to forex traders because they provide a glimpse at how Australia’s labor market is faring. And knowing the current state of the labor market is important because of the spill-over effect it has on the economy, particularly to consumer spending and growth. After all, jobs means wages, and wages mean being able to buy stuff, fueling economic growth in the process.

RBA officials also look at the report. In their November Statement on Monetary Policy, RBA officials stated that “Household consumption, supported by low interest rates and growing employment, is forecast to make an important contribution to growth” and they noted that “Employment growth is forecast to remain relatively strong and the participation rate is expected to increase a little further,” so RBA officials are clearly looking at the jobs data and the past performance of the labor market is one reason why they were less dovish in their most recent rate decision and statement.

What happened last time?

Australia’s jobs report for the September period was a disappointment since employment change saw a net decrease of 5.1K jobs instead of the expected increase of 7.2K jobs, but at least the previous reading was upgraded slightly from 17.4K to 18.1K.

The jobless rate also held steady at 6.2%, but the details of the report show the labor force participation rate decreased from 65.02% to 64.86%, which means that the 8.1K drop in the number of unemployed was likely due to people giving up on looking for jobs altogether.

Also, the 5.1K net decrease in jobs was due to a 13.9K drop in the number of full-time jobs being partially offset by an increase of 8.9K part-time jobs, which is bad since full-time employment offers better job security and generally offers higher wages when compared to part-time employment.

What’s expected this time?

For the upcoming jobs report, market analysts and forex trades expect the jobless rate to hold steady at 6.2%, but they also expect the Australian economy to generate a net increase of 15.0K jobs.

Looking at some leading labor indicators, ANZ’s job advertisements survey registered another increase during the October period, rising by 0.4% month-on-month after a strong 3.8% increase back in September. Warren Hogan, ANZ’s chief economist, noted in the report that “many services industries are experiencing relatively strong demand, and these industries are typically quite labour intensive.”

The Australian Industry Group (AIG) begs to differ, however, since its services index for October dropped below the 50.0 neutral mark from 52.3 to 48.9, indicating a contraction in the sector. The employment sub-index, in particular, slid a little lower from 48.9 to 48.0, which is pretty bad.

AIG’s manufacturing index was a little better since it printed a 50.2 reading, but it’s still lower than the previous reading of 52.1. Also, the employment sub-index for the manufacturing sector shed 1.5 points and dropped to 49.2, which is another bad news for the labor market. The only saving grace came from AIG’s construction index since it strengthened from 51.9 to 52.1, and its employment sub-index strengthened with it, posting a net increase of 2.3 points to 54.9.

Overall, there are warning signs that the upcoming reading may disappoint, so do be careful.

How might AUD/USD react?

AUD/USD: 15-minute Forex Chart

AUD/USD: 15-minute Forex Chart

When the disappointing reading for the previous month’s employment change was released, forex traders reacted by buying up the Aussie across the board. Wait, what? Yep, you read that right – the Aussie went up instead of down. The reason’s pretty simple, really. At the time, Rio Tinto reported a 17% surge in iron ore shipments for Q3, and forex traders were probably pricing in that juicy piece of news.

Oh, for those who don’t know, Rio Tinto is one of the biggest mining companies operating in Australia, and a sudden surge in iron ore shipments from the mining company could mean an upward contribution to Australia’s GDP growth from exports.

Despite the goods news from Rio Tinto, the Aussie kept meeting sellers across the board, probably because forex traders were also trying to price in the disappointing jobs data, with Aussie bears finally winning out when the U.S. forex session rolled in. Although the better-than-expected reading for U.S. headline CPI was probably in play with regard to AUD/USD.

In any case, just remember that forex traders usually have a knee-jerk reaction to the readings – buying up the Aussie when the readings are better-than-expected, and dumping it when it fails to meet expectations. Of course, there are times (such as last time) when a knee-jerk reaction is absent due to the presence of other Australian economic reports or reports from China, but the coast is clear for Australia’s jobs report this time around. Surprise reports related to the commodities market (iron ores in particular) are still a risk factor, however, so keep your eyes and ears open for such reports.

How do you think Australia’s October employment data might turn out? Got any trade plans you’d like to share?