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G’day, fellow forex traders! Do you feel the need to grab some quick pips? Then take a look at my Forex Trading Guide for Australia’s June jobs report!

Australia’s June jobs report is scheduled for release on Thursday (July 9) and it usually generates a lot of volatility, especially if the actual readings beat or are beaten by expectations. Are you ready to trade this one?

What is this report all about?

The Australian Bureau of Statistics (ABS) releases a report on the Australian labor market every month. The labor report lists various labor indicators although forex traders generally focus only on three indicators: (1) the employment change, (2) the jobless rate, and (3) the labor force participation rate.

Jobs data are important because a healthy labor market usually leads to higher consumer confidence and consumer spending, which then have a positive spill-over effect on the other aspects of the economy. Higher spending means higher demand which, in turn, means that companies will need to hire more people in order to ensure that production meets demand, further expanding the economy in the process.

What happened last time?

The labor report for May shows that the number of unemployed people declined from 767K to 745K, which is why the jobless rate surprisingly shrank to 6.0%, a one-year low. Another welcome surprise was the previous reading being revised downwards from 6.2% to 6.1%. As for the labor force participation rate, it remained essentially unchanged at 64.7%, which means that the downtick for the jobless rate is healthy since it wasn’t due to people leaving the labor force.

Moving on, employment change saw 42.0K new jobs for the month of May, although the number of jobs lost last month was downgraded from a stinging 2.9K fall to a more painful 13.7K drop. On a more upbeat note, full-time jobs increased by 14.7K, and that’s a good thing since full-time jobs generally offer more pay and security than part-time jobs.

What is expected by most forex traders?

The prevailing consensus among forex traders is that the jobless rate will tick higher by 6.1% with a loss of about 2.1K jobs. The labor force participation rate, meanwhile, is expected to remain unchanged at 64.7%.

The expected downturn is supported by AIG’s manufacturing (44.2 actual, 52.3 previous) and construction (46.4 actual, 47.8 previous) indices for June since they both showed a contraction. The manufacturing index, in particular, had a severe contraction relative to its previous reading, with subdued domestic demand being cited as the primary culprit. Also, a closer look reveals that the manufacturing sector’s employment sub-index fell by 5.9 points to 44.9 points, which means that companies have been forced to downsize.

How might AUD/USD react?

If the actual readings are within expectations, then AUD/USD doesn’t react much or has a lot of volatility but no overall direction when the report is released. But if the actual readings beat or are beaten by expectations, then price usually moves fast and hard in one direction.

In the case of the previous jobs report, the actual readings were in tandem since both employment change and the jobless rate exceeded their respective previous readings and the market’s expectations. However, the employment change for April was downgraded to show a drastic drop in hiring, which is probably why we only saw an 80-pip move.

AUD/USD 1-hour Forex Chart
AUD/USD 1-hour Forex Chart

Still, an 80-pip move in under an hour is relatively big given that the average daily volatility of AUD/USD is just around 100 pips. Do note that Australia has been seeing a lot of other negative economic data, which has probably contributed in the increase in bearish sentiment for the Aussie, as Forex Ninja noted in his CFTC COT positioning update.

In addition, the Reserve Bank of Australia (RBA) has declared in its recent monetary policy statement that unemployment remains high and that weak wage growth could continue to weigh on inflation. Governor Stevens might be setting the tone for a disappointing jobs report but I still wouldn’t rule out a potential upside surprise. How do you think this release might turn out?