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Going through my checklist of 5 major catalysts for AUD pairs this week, it looks like we’re already at #4 – Australia’s job’s report. And if y’all took a peek at my Forex Trading Guide for the NFP report, then y’all already have an idea of just how important employment levels and job creation are to the economy.

1. The previous release

June’s labor report was optimistic overall since both employment change (7.3K actual v.s. -2.1K expected, 40.0K previous) and the jobless rate (6.0% actual v.s. 6.1% expected, 5.9% previous) managed to beat market expectations.

It’s worth noting that the jobless rate ticked higher only because the previous reading was revised downward from 6.0%. And while the 7.3K net new jobs for June pales in comparison to the 40.0K net new jobs back in May, a closer look at the report shows that it ain’t all that bad since full-time employment increased by 24.5K, offsetting the 17.2K decrease in part-time employment. Moreover, the labor force participation rate ticked higher from 64.7% to 64.8%.

AUD/USD 1-hour Forex Chart (July 9, 2015)
AUD/USD 1-hour Forex Chart (July 9, 2015)

In response to the positive data, forex traders sent the Aussie ever higher for most of the Asian session. European forex traders, on the other hand, got the nasty news that iron ore, a major Australian export, took a 10% dive to $44.59 per dry metric ton, which is probably why the Aussie got sold off during the London session.

2. Expectations for this release

The consensus among forex traders and economists is that the net new jobs for July will increase by 10.0K. As for the jobless rate, it is expected to climb higher from 6.0% to 6.1%, which would be bad news for the Aussie. ANZ’s job advertisements report is already signalling that this is a possible scenario since the number of job ads fells by 0.4% (+1.2% previous) in July.

But do note that RBA Governor Glenn Stevens remained optimistic on the Australian labor market in his July 22 speech when he said that “the state of the labour market, while still somewhat subdued, appears to be better than we had expected three or six months ago,” so perhaps forex traders would be looking at the longer term trends. And looking at the forex calendar, there aren’t any simultaneous releases that could interfere with this event, although commodity prices would always be a risk.

Of course, we can also expect a knee-jerk reaction to the data, so readings which beat expectations would likely cause the Aussie to appreciate while dismal readings would probably convince forex traders to dump the Aussie.

3. Market sentiment for the Aussie

Forex traders have recently been loading up the Aussie, thanks to the better-than-expected readings for Australia’s retail sales and trade balance. But the greatest contributor to the shift in Aussie sentiment was probably the latest rate statement from the Reserve Bank of Australia (RBA).

Normally, the latest rate statement is usually just a rehash of the previous rate statement, but the August 4 rate statement was far from typical, and prudent forex traders caught a major discrepancy.

Compared with the July 7 rate statement, the phrase “Further [Australian dollar] depreciation seems both likely and necessary, particularly given the significant declines in key commodity prices” was conspicuously replaced by the phrase “The Australian dollar is adjusting to the significant declines in key commodity prices.”

Since the RBA is no longer calling for the Aussie to decline further, forex traders concluded that it was time to do the opposite – they began pushing the Aussie higher. Great! But how will this affect the jobs data event? Well, all I’m saying is that if actual readings are better-than-expected, we may potentially see even strong Aussie rallies since the path of least resistance appears to be to the upside.