Forex Trading Guide: Australian Jobs Report (Dec)

G’day, forex mates! Australia has served up two back-to-back blockbuster job reports so far. And with another jobs report coming out tomorrow (Jan. 14, 12:30 am GMT), I made this here Forex Trading Guide for those among y’all who want to trade this event.

Why is this report important?

Forex veterans may wanna skip this part. But for the forex newbies out there (and veterans who need a refresher), Australia’s jobs report compiled and released by the Australian Bureau of Statistics (ABS) are very valuable to both decision makers and forex traders alike since they give a comprehensive snapshot of the current state of Australia’s labor market. And gauging the strength (or weakness) of the labor market is important because a healthy labor market generally has a positive impact on consumer spending, which keeps the Australian economy supported.

What happened last time?

  • Employment change: +71.4K vs. -10.0K expected, +56.1K previous
  • Jobless rate: 5.8% vs. 6.0% expected, 5.9% previous
  • Labor force participation rate: 65.3% vs. 65.0% previous

If y’all can still recall, I concluded in my previous Forex Trading Guide that leading labor indicators were hinting at an upside surprise. And I also noted that there was a good chance that the October reading will be downgraded. Well, that’s exactly what happened.

Australia’s jobs report for the November period was just fantastic since it printed a 71.4K increase in net employment when the consensus among most forex traders and analysts was a decrease of 10.0K. The previous reading, meanwhile, was downgraded slightly from 58.6K to 56.1K. Anyhow, full-time employment contributed about 41.6K to the net increase in employment while part-time employment only contributed 29.7K, which is good since full-time jobs generally pay more and offer more security.

The increase in net employment was apparently enough to drive the jobless rate lower to 5.8%, which is great since it was expected to tick higher to 6.0%. Furthermore, the labor force participation rate increased from 65.0% to 65.3%, which implies that the downtick in the jobless rate is healthy since the Australian economy was able to absorb the influx of workers who joined/rejoined the labor market.

What do forex analysts expect?

  • Employment change: -10.0K expected vs. +71.4K previous
  • Jobless rate: 5.9% expected vs. 5.8% previous

For tomorrow’s December 2015 jobs report, forex traders and market analysts expect a net decrease of 10K in overall employment, which should be enough to cause the jobless rate to tick lower to 5.9%.

Looking at some of the leading indicators, ANZ’s job advertisement survey printed a 0.1% decrease during the December period, but ANZ Chief Economist Warren Hogan commented that the survey results were “weighed down by the timing of Christmas Day” given that Christmas fell on a Friday, which is when ANZ usually takes its surveys. This therefore implies that the actual reading could have been higher.

Moving on, AIG’s performance of services index (PSI) tumbled from 48.2 to 46.3 during the December period, marking the third consecutive month of contraction in the services sector. Interestingly enough, the employment sub-index printed an increase from 47.1 to 48.6, which means that the contraction slowed down.

As for AIG’s performance of manufacturing index (PMI), it showed that the moderate expansion slightly slowed down from 52.5 to 51.9, but the employment sub-index printed a modest increase from 51.7 to 52.4, which is apparently the highest reading since December 2014.

Finally, AIG’s performance of construction index (PCI) sank from 50.7 to 46.8, but its employment index is still (just barely) in expansionary mode at 50.1. It’s substantially slower than the previous month’s reading of 54.4, however.

Overall, the leading labor indicators seem to be skewed towards an upside surprise, but do consider that a large chunk of the previous month’s job gains were from part-time employment, so downgrades to the previous reading is within the realm of possibility.

How might the Aussie dollar react?

Forex traders usually buy up the Aussie when the actual readings are better-than-expected. On the flip side, worse-than-expected readings usually trigger an Aussie selling spree. and looking at the chart below, you can pretty much conclude that the previous month’s better-than-expected jobs report was a textbook example of the former.

AUD/USD 15-Minute Forex Chart

AUD/USD 15-Minute Forex Chart

Also note that the return of risk appetite and several pattern breakouts among Aussie pairs after weeks of severe Aussie weakness may result in a stronger bullish reaction, assuming that the actual readings would be better-than-expected, of course. And make sure to keep an eye on commodity prices, especially iron ore, and reports about China since they can sometimes overpower (or amplify) the Aussie’s forex reaction to the jobs report.

How do ya reckon Australia’s jobs report will turn out? Share your thoughts in the poll and/or comment below.

 

  • Ram

    Hi Piponomics,

    Can you please help me to understand what is this downgraded actually means? In november reading it is printed as 58.6K where as in decemeber it shows 56.1K. Why is this case. Is there any other report which traders not aware? Do we need to notice this change as well for trading?

    • Hi Ram,

      You must first understand that practically all jobs reports are surveys, so statistical institutions (the ABS in this case) only take a sample of the population – they don’t visit everybody to ask whether they have jobs or not.

      With that said, surveys are usually reviewed and sometimes errors are found or new data comes to light after the report has already been issued. ABS rectifies this by revising their numbers when the next report is released.

      Anyhow, the revised numbers are already in the report. It’s on page 10 of the November period jobs report that I linked in the write-up. As for the downgrade, it just means that the net increase in jobs during November was actually less than originally reported.

      And with regard to your last question, the revised reading is not really that important unless the revision is substantially large or a net increase in jobs becomes a net decrease instead. But it does affect trader sentiment when it is released, so if tomorrow’s jobs report, for example, will yield a big jump in employment gains but the previous reading is reduced by half, then traders will likely think twice before buying up the Aussie.

      I hope I answered your questions.

      • Ram

        Thanks a lot for detailed explaination, Forex Gump. Yes it make sense

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  • Hi Jason-Anthony,

    The jobs report came out about 7-8 hours ago, a few hours after you asked your question, so I’m a bit puzzled here. Perhaps you made a mistake with the time zone? Our website uses EST, but I used GMT for the release time of the Aussie jobs report. And looking at the 15-minute charts, AUD/USD’s fall actually stopped when the jobs report came out.

    Regarding your last question, and assuming you are looking at the 1-hour charts, the AUD/USD fall you noticed yesterday was most likely due to returning risk aversion. This becomes apparent when you notice that the Aussie was weak against the safe-haven currencies (CHF, JPY, USD), but was putting up more of a fight against the higher-yielding comdolls.

    But the Aussie WAS showing signs of broad weakness yesterday, likely because of another slide in iron ore prices.
    http://www.afr.com/business/mining/iron-ore/iron-ore-drops-41pc-extending-slide-into-seventh-day-20160113-gm5drb

  • Ah, I see. I thought you were referring to the current jobs report, haha.

    And to answer your question, most Aussie pairs were actually weak since Dec. 7 due to a double whammy from general risk aversion and what Pip Diddy referred to as the December Commodities Carnage. Speaking of Pip Diddy, he usually writes an end-of-the-week summary every Saturday on the currencies that were on the move and what moved them. And regarding the commodities carnage, you can read more about that by clicking on the link below.

    http://www.babypips.com/blogs/pipnoculars/forex-weekly-20151212.html

    As for the spike, that usually happens when the actual readings are significantly better-than-expected. Here are links for two recent examples:

    http://www.babypips.com/blogs/piponomics/forex-australia-jobs-20151014.html
    http://www.babypips.com/blogs/piponomics/forex-australia-jobs-20151209.html

    The follow-through buying (or selling in this case) after that tends to be more complex since reports about China, commodity prices, the long-term significance of the report, and overall risk sentiment come into play.

    I hope I was able to fully answered your questions.

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