G’day, forex mates! If you’re looking for a potential catalyst for the Aussie, then heads up because Australia’s jobs report will be released tomorrow at 1:30 am GMT. And if you’re planning to trade this top-tier report, then you better read up on today’s Event Preview.
What happened last time?
- February employment change: +17.5K vs. +20.0K expected
- January employment change: downgraded from +16.0K to +12.5K
- Jobless rate: 5.6% vs. steady at 5.5% expected
- Labor force participation rate: 65.7% vs. 65.5% expected, 65.6% previous
The Australian economy only generated 17.5K jobs in February, missing expectations for a 20.0K increase. Worse, the previous month’s 16.0K increase in jobs was downgraded to just +12.5K. The jobless rate, meanwhile, deteriorated from 5.5% to 5.6%.
In other words, Australia’s February jobs report was a disappointment and forex traders responded by dumping the Aussie across the board as a knee-jerk reaction.
However, a closer look at the details of the report actually reveals some positive undertones.
The jobless rate, for one, deteriorated partly because the labor force participation rate improved fom 65.6% to 65.7%.
Another is that full-time employment surged by 64.9K, which is the biggest increase in full-time jobs in eight months. It just so happens that 47.4K jobs got culled, resulting in the weaker-than-expected increase in net employment.
Despite these positive details, selling pressure prevailed on all Aussie pairs. And that was likely due to the slide in gold prices and the intense risk-off vibes at the time due to fears that Trump will announce additional Anti-China tariffs. And we now know that Trump did announce tariffs on Chinese goods. Although trade war fears have been put on the back burner for now.
What can we expect this time?
- Employment change: +20.0K expected vs. +17.5K previous
- Jobless rate: 5.5% expected vs. 5.6% previous
- Labor force participation rate: expected to hold steady at 65.7%
Most economists estimate that the Australian economy generated around 20.0K jobs in March, which is a faster pace of jobs growth compared to the 17.5K increase back in February.
Most economists also agree that the labor force participation rate likely held steady ay 65.7% but that the 20.0K increase in jobs would be enough to push the jobless rate down from 5.6% to 5.5%.
So, what do the available leading indicators have to say?
- The employment sub-index of AIG’s performance of manufacturing index (PMI) rose by 2.2 index points to a record high of 60.0. Enough said!
- The employment sub-index of AIG’s performance of construction index (PCI) fell by 3.1 index points to 55.7. The reading is still above the 50.0 stagnant level so employment still grew, albeit at a softer pace.
- Meanwhile, the employment sub-index of AIG’s performance of services index (PSI) improved by 1.0 index point to 54.9, so overall jobs growth accelerated. However, AIG also pointed out that “Employment demand remains mixed across the services sectors, with stronger demand from business-oriented industries (with generally higher level skills), but weaker demand across retail, wholesale and hospitality.”
- As for the employment sub-index of the NAB monthly business survey, that dropped from 16 index points to just 9 points. This is still above zero and a “solid” reading according to NAB. Moreover, the reading is consistent with jobs growth of “approximately 21k per month.”
Overall, the leading indicators are mixed but they seem to lean more towards the consensus that jobs growth accelerated.
NAB even noted that the weaker reading for the employment sub-index in March, the reading is still consistent with “approximately 21k per month,” which is in-line with consensus.
Let’s now move to historical tendencies then. Do they offer additional insights?
There’s no clear tendency, but there are slightly more instances when jobs growth picked up the pace between February and March.
Fortunately, economists have a clear tendency to undershoot their guesstimates for the March reading, resulting in more upside surprises.
Moreover, February’s reading usually (but not always) gets an upgrade.
The jobless rate also ticks lower in March (more often than not).
In summary, the available leading indicators are mixed but they seem to support the consensus that jobs growth picked up the pace, or at least grew by around 20.0K.
Historical trends aren’t very strong, but they do seem to support a pickup in jobs growth between the months of February and March.
Moreover, historical tendencies show that economists tend to be too pessimistic for their guesstimates, resulting in more upside surprises for both the jobless rate and jobs growth.
Probably therefore seems skewed more towards an upside surprise for both labor indicators.
But as always, just remember that we’re playing with probabilities here, so the risk for a downside surprise is still there.
Also, just remember that traders usually have their sights on jobs growth, with a better-than-expected reading resulting in quick Aussie rally while a miss usually triggers a quick Aussie selloff. And the Aussie’s reaction to the previous jobs report is a textbook example of the latter.
As for follow-through buying or selling, that usually depends on whether jobs growth was driven by full-time employment or not. However, gold prices also usually play a part.