Forex Preview: Australia’s Jobs Report (May)

G’day, forex mates! Looking for a potential catalyst for the Aussie? If you are, just know that we’ll be getting Australia’s jobs report tomorrow (June 16, 1:30 pm GMT). And if you need to get up to speed on what happened last time and what to expect, then this Forex Preview can help you out.

What happened last time?

  • Employment change: +10.8K vs. +12.0K expected vs. +25.7K previous
  • Jobless rate: steady at 5.7% vs. uptick to 5.8% expected
  • Labor force participation rate: 64.8% vs hold steady at 64.9% expected

Based on the available leading indicators, I reckoned in the previous Forex Preview for Australia’s jobs report that we’re getting “yet another mixed picture,” but I ultimately concluded that the leading indicators were “leaning towards another potential upside surprise.” Unfortunately, we got the opposite since the Australian economy was only able to generate a net increase of 10.8K jobs, which is lower than the expected 12.0K increase and the previous month’s downgraded +25.7K figure (+26.1K originally).

On a more upbeat note, this marks the second consecutive month of job gains after three straight months of losses. Also, the jobless rate held steady at 5.7%, which is the lowest reading since September 2013.

Taking a closer look at the details of the jobs report, the jobless rate held steady even though the labor force participation rate slid to a 10-month low of 64.8%, which means that the jobless rate could have ticked higher if the blokes and sheilas who got discouraged and called it quits decided to keep on looking for work.

Also, the net gain in employment was entirely due to part-time employment, with part-time jobs increasing by 20.2K. Meanwhile, the Australian economy continued losing full-time jobs, seeing a net loss of 9.3K full-time jobs in April. Furthermore, monthly hours worked fell for the third consecutive month, slumping by 1.09% or 17.86 million hours, which means lower earnings and possibly lower productivity.

Overall, Australia’s jobs report was mixed on the surface, so the initial reaction was to dump the Aussie across the board, followed by an attempt to buy up the Aussie, also across the board. The jobs report was actually pretty bad when you take a closer look at the details, however, which is likely why the Aussie began trading lower after the knee-jerk reaction.

AUD/USD: 15-Minute Forex Chart

AUD/USD: 15-Minute Forex Chart

What can forex traders expect this time?

  • Employment change: +15.0K expected vs. +10.8K previous
  • Jobless rate: hold steady at 5.7% expected
  • Labor force participation rate: uptick from 64.8% to to 64.9% expected

For the upcoming jobs report, the general consensus is that the Australian economy will generate a net increase of 15.0K jobs, which is more than the previous 10.8K increase. As for the jobless rate, it is expected to hold steady at 5.7%, although the labor force participation rate is expected to tick higher from 64.8% to 64.9%.

Great, but what do our leading labor indicators say?

First off, ANZ’s jobs advertisement survey for the month of May rebounded by 2.4% after a 0.6% contraction in total job ads previously, which is really encouraging.

Next, AIG’s performance of services index (PSI) increased by 1.8 point to 51.5 in May while the employment index increased by 1 point to 49.1, so employment in the service sector was stabilizing but still contracting a bit.

After that, AIG’s performance of manufacturing index (PMI) dropped further by 2.4 points to 51.0. The employment index for the manufacturing sector, meanwhile, dropped by 3.4 points to 45.6, which signals a faster contraction in employment.

Moving on, AIG’s performance of construction index (PCI),it drifted 4.1 points lower to 46.7. The employment index dropped even harder, shedding 5.5 points to come in at 49.0, which is below the 50.0 stagnation levels and therefore means that there was some job shedding in the in the construction industry.

As for the National Australia Bank’s (NAB) Monthly Business Survey, its employment index dropped from 4.0 index points to just 1.0 point. Commentary from the NAB survey also noted that, “half of the industry groupings in the Survey recorded a weakening in employment conditions this month.” Manufacturing saw the worst job shedding, followed by construction, financial services, and wholesale trade.

Overall, the leading labor indicators are pointing to a possible slowdown in employment growth, so it seems chance is heavily skewed towards a potential downside surprise.

As usual, keep in mind that better-than-expected readings usually trigger a quick rally while worse-than-expected readings generally cause a quick selloff. Also, make sure to keep an eye on the overall risk sentiment and commodity prices, especially if you have longer-term trades in mind.

 

 


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