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G’day, forex mates! The Aussie has been under pressure lately due to a one-two punch from risk aversion and a slump in commodities, especially iron ore prices dropping to the lowest level ever since May 2009, which is horrible news for Australian mining companies.

And the upcoming jobs report, which is gonna be released on Thursday (Dec. 10, 12:30 am GMT), may just be the catalyst that will kick the Aussie lower (or help it to recover).

Why not get up to speed with another edition of my Forex Trading Guide?

What’s this report all about?

To the newbie forex traders out there, the Australian Bureau of Statistics (ABS) releases a monthly report on the current state of the Australian jobs market, which is of great importance to forex traders, long-term investors, and policymakers since a healthy labor market is a good indicator of a healthy, growing economy.

Also, Reserve Bank of Australia (RBA) Governor Glenn Stevens noted in his December monetary policy statement that a “stronger growth in employment and a steady rate of unemployment” has been one of the factors why RBA officials decided to keep rates steady, so jobs data also help to steer monetary policy.

What happened last time?

  • Employment change: 58.6K vs. 14.8K expected, -0.8K previous
  • Jobless rate: 5.9% vs. 6.2% expected, 6.2% previous
  • Labor force participation rate: 65.0% vs. 64.9% previous

The jobs report for October was a real blockbuster since employment change saw a net increase of 58.6K jobs, which was a very pleasant upside surprise when compared to the expected net increase of only 14.8K jobs.

Even better, 40.0K of the 58.6K net increase in jobs was due to full-time employment, and the previous reading was significantly upgraded from a net loss of 5.1K jobs to a net loss of just 0.8K.

Better still, the increase in jobs caused the jobless rate to drop lower to 5.9% from 6.2%, and it’s a healthy drop since the labor force participation rate actually ticked higher from 64.9% to 65.0%.

What is expected this time?

  • Employment change: -10.0K expected vs. 58.6K previous
  • Jobless rate: 6.0% expected vs. 5.9% previous

For the upcoming November jobs report, forex traders and market analysts are expecting a net decrease of around 10K jobs while, and the jobless rate is expected to tick higher from 5.9% to 6.0% to boot.

Overall, the upcoming jobs report is expected to be bad, but what do some of the leading indicators say? AIG’s

Well, the Australian Industry Group’s (AIG) performance of the manufacturing index for the November period increased from 50.2 to 52.5, with the manufacturing employment sub-index advancing from 49.3 to 51.7.

Meanwhile, AIG’s performance of construction index for the November period slowed down a bit from 52.1 to 50.7, but it’s still above the 50.0 stagnation level, so everything’s still cool.

The construction employment sub-index slowed down a tiny bit from 54.9 to 54.5, however, but it still marks the fourth consecutive month of expansion.

As for AIG’s performance of services index, it was still indicating a mild contraction since the reading dropped a bit from 48.9 to 48.2, with the services employment index contracting for the third consecutive month in November at 47.1 (48.0 previous).

ANZ’s job advertisement survey also saw a 1.3% month-on-month increase in November, with Felicity Emmett, ANZ’s co-head of Australian economics, commenting that “Australia’s labour market continues to send positive signals about the current state of the economy.”

However, she also warned that they “expect the unemployment rate to broadly track sideways around 6% until later next year.”

The National Australia Bank’s (NAB) business confidence survey for November was also optimistic since it climbed higher from +3 points to +5 points, but a closer look at the report shows that businesses were less optimistic about employment since the related sub-index dropped from +3 points to just +1 point.

Overall, the leading indicators are sending mixed signals, but they’re still mostly in expansionary mode (with the exception of AIG’s services employment sub-index), so an upside surprise is a possibility.

However, do note that some forex traders and market analysts have expressed skepticism on the previous job figures, so expect some downward revisions.

How might the Aussie dollar react?

Worse-than-expected readings usually cause disappointed forex traders to dump the Aussie pretty hard while better-than-expected readings generally convince forex traders to start loading up on the Aussie.

One such example of the latter scenario was the previous month’s very positive jobs report, which caused Aussie pairs to spike across the board.

AUD/CAD: 15-minute Forex Chart
AUD/CAD: 15-minute Forex Chart

There was very little follow-through from buyers after the initial knee-jerk reaction, however, probably because forex traders began to doubt the authenticity of the jobs report.

Heck, the Aussie even began to weaken against the safe-haven currencies (USD, JPY, CHF) later on due, perhaps, to the return of risk aversion at the time.

AUD/USD: 15-minute Forex Chart
AUD/USD: 15-minute Forex Chart

Anyhow, make sure to take a closer look at the report when it comes, especially the reading for the labor force participation rate. Also, make sure to take commodity prices and overall risk sentiment into account as well since they also weigh in on the Aussie’s forex price action.

After all, forex traders, for example, probably wouldn’t be too eager to load up on the high-yielding Aussie if risk-off sentiment prevails, unless the reading is an overwhelmingly significant upside surprise.