G’day, forex mates! Australia has served up two back-to-back blockbuster job reports so far.
And with another jobs report coming out tomorrow (Jan. 14, 12:30 am GMT), I made this here Forex Trading Guide for those among y’all who want to trade this event.
Why is this report important?
Forex veterans may wanna skip this part. But for the forex newbies out there (and veterans who need a refresher), Australia’s jobs report compiled and released by the Australian Bureau of Statistics (ABS) are very valuable to both decision-makers and forex traders alike since they give a comprehensive snapshot of the current state of Australia’s labor market.
And gauging the strength (or weakness) of the labor market is important because a healthy labor market generally has a positive impact on consumer spending, which keeps the Australian economy supported.
What happened last time?
- Employment change: +71.4K vs. -10.0K expected, +56.1K previous
- Jobless rate: 5.8% vs. 6.0% expected, 5.9% previous
- Labor force participation rate: 65.3% vs. 65.0% previous
If y’all can still recall, I concluded in my previous Forex Trading Guide that leading labor indicators were hinting at an upside surprise. And I also noted that there was a good chance that the October reading will be downgraded. Well, that’s exactly what happened.
Australia’s jobs report for the November period was just fantastic since it printed a 71.4K increase in net employment when the consensus among most forex traders and analysts was a decrease of 10.0K.
The previous reading, meanwhile, was downgraded slightly from 58.6K to 56.1K. Anyhow, full-time employment contributed about 41.6K to the net increase in employment while part-time employment only contributed 29.7K, which is good since full-time jobs generally pay more and offer more security.
The increase in net employment was apparently enough to drive the jobless rate lower to 5.8%, which is great since it was expected to tick higher to 6.0%.
Furthermore, the labor force participation rate increased from 65.0% to 65.3%, which implies that the downtick in the jobless rate is healthy since the Australian economy was able to absorb the influx of workers who joined/rejoined the labor market.
What do forex analysts expect?
- Employment change: -10.0K expected vs. +71.4K previous
- Jobless rate: 5.9% expected vs. 5.8% previous
For tomorrow’s December 2015 jobs report, forex traders and market analysts expect a net decrease of 10K in overall employment, which should be enough to cause the jobless rate to tick lower to 5.9%.
Looking at some of the leading indicators, ANZ’s job advertisement survey printed a 0.1% decrease during the December period, but ANZ Chief Economist Warren Hogan commented that the survey results were “weighed down by the timing of Christmas Day” given that Christmas fell on a Friday, which is when ANZ usually takes its surveys. This, therefore, implies that the actual reading could have been higher.
Moving on, AIG’s performance of services index (PSI) tumbled from 48.2 to 46.3 during the December period, marking the third consecutive month of contraction in the services sector. Interestingly enough, the employment sub-index printed an increase from 47.1 to 48.6, which means that the contraction slowed down.
As for AIG’s performance of manufacturing index (PMI), it showed that the moderate expansion slightly slowed down from 52.5 to 51.9, but the employment sub-index printed a modest increase from 51.7 to 52.4, which is apparently the highest reading since December 2014.
Finally, AIG’s performance of construction index (PCI) sank from 50.7 to 46.8, but its employment index is still (just barely) in expansionary mode at 50.1. It’s substantially slower than the previous month’s reading of 54.4, however.
Overall, the leading labor indicators seem to be skewed towards an upside surprise but do consider that a large chunk of the previous month’s job gains was from part-time employment, so downgrades to the previous reading are within the realm of possibility.
How might the Aussie dollar react?
Forex traders usually buy up the Aussie dollar when the actual readings are better-than-expected.
On the flip side, worse-than-expected readings usually trigger an Aussie selling spree. and looking at the chart below, you can pretty much conclude that the previous month’s better-than-expected jobs report was a textbook example of the former.
Also note that the return of risk appetite and several pattern breakouts among Aussie pairs after weeks of severe Aussie weakness may result in a stronger bullish reaction, assuming that the actual readings would be better-than-expected, of course.
And make sure to keep an eye on commodity prices, especially iron ore, and reports about China since they can sometimes overpower (or amplify) the Aussie’s forex reaction to the jobs report.