Jobless Affair: AUD & CAD

I was eating lunch last Saturday when I saw something unusual – Happypip wasn’t her usual happy self. Being the good guy that I am, I asked her what was wrong. With a frown on her face she replied, “I’m a bit sad because all you do is write about the happenings in the US and Europe. I feel that you’re neglecting two of my favorite countries and currencies – the Aussie and the Loonie.”

“When was the last time I did a special update on these currencies?” I thought to myself. Heck, even I don’t remember!

Well, it’s about time I get on it doggonit! Let me start with Australia

To the dismay of many Australians, firms slashed almost twice as much jobs as the initial forecast of only 14,300 in August. The number of net jobs that were lost during the month amounted to 27,000 after the number of employed individuals rose by 33,700 in the month prior. Weird as it may seem, the nation’s unemployment rate stayed flat at 5.8%, slightly better than the 5.9% consensus. Australia posted two months of notable net job growth so far this year which, unfortunately, were followed by a similar rate of retrenchment on the succeeding month. Bottomline? Growth in employment has yet to be sustained.

The next unemployment report for September which is set to come out on Thursday is predicted to show that another 9,700 workers lost their jobs. This could bring the jobless rate up to 6.0% from 5.8%. With the RBA recently hiking its interest rate to 3.25% from 3.00%, it would now cost more for local businesses in Australia to borrow money for expansion purposes. This could potentially be unfavorable to the labor market down the line.

Meanwhile, Canada‘s employment change report for August printed a surprise 27,100 increase of net jobs, which is a nice rebound from July’s 44,500 in job losses. A slight correction of 6,700 in job losses is expected in September which should bring Canada’s unemployment rate from 8.7% to 8.8%. Now, I can’t help but notice that Canada has already reported positive employment growth two times this year as it posted 35,900 and 27,100 increases in jobs for April and August, respectively. Could we chalk up another month in employment growth upon the release of Canada’s employment report on Friday?

The trend in Canadian employment change has been a bit of a bumpy ride but comparing the recent figures to the ones at the start of 2009, an improvement could be on the horizon once again. Job losses peaked at 129,000 in January and eased to 61,300 in March. The 35,900 employment growth in May was quickly erased the next month when 41,800 in job losses were reported. Would we see another correction or would another increase in hiring boost the CAD?

One thing to take note of is that the labor market has a large influence on market sentiment. Why? Well, not all of us have the athletic ability to throw the pigskin 70 yards or the talent and charisma to headline a rock show at Madison Square Garden – we have to hit the daily grind to earn our moolah! Without the labor market, there is no income for consumers, which of course means no spending. If people can’t spend, then economic growth starts to look gloomy… and well, y’all know what that means in the currency markets…

Look at what has happened in the past year. When US payroll reductions were around the 500,000 mark, the dollar benefited as a result of risk aversion. When monthly net job losses started to bottom out around May this year, higher yielding currencies took their cue and started make their move higher against the greenback.

But, as I always say, the market is mysterious and manages to do its own thing regardless of the past. The US non-farm payrolls report released last Friday came out worse than expected, and as expected of traders, the initial market reaction was to buy the dollar on risk aversion. However, momentum faded quickly and wadya know – the dollar dropped like loose change! Are currency traders back to playing currencies according to their fundamentals?

Sentiment is constantly changing over time in the markets along with price action behavior. We could be in the middle of paradigm shift of how market players play currencies in response to jobs data, but we won’t know for sure for some time. For now, we’ll just have to wait and see what the jobs data prints this week from Australia and Canada, and observe on whether traders play currencies based on risk sentiment or the fundamentals. Be ready, trade safe, and good luck!

Are ya happy now Happypip!? hehe 😀