AUD/USD- Trading the Australia Employment Report

DailyFX

Trading the News: Australia Employment Change

What’s Expected:

Time of release: 05/09/20131:30 GMT, 21:30 EDT

Primary Pair Impact: AUDUSD

Expected: 11.0K

Previous: -36.1K

DailyFX Forecast: -10.0K to 10.0K

Why Is This Event Important:

Australia is expected to add 11.0K jobs in April and the rebound in employment may prop up the AUDUSD as it dampens the scope for lower borrowing costs. However, as the Reserve Bank of Australia (RBA) continues to strike a dovish tone for monetary policy, another dismal print may fuel speculation for another rate cut, and the AUDUSD remains poised to weaken further over the near to medium-term as it maintains the bearish trend dating back to 2011.

Recent Economic Developments

The Upside

Release

Expected

Actual

Trade Balance (MAR)

0M

307M

Private Sector Credit (YoY) (MAR)

3.2%

3.2%

NAB Business Confidence (1Q)

--

2

The Downside

Release

Expected

Actual

Retail Sales s.a. (MoM) (MAR)

0.1%

-0.4%

ANZ Job Advertisements (MoM) (APR)

--

-1.3%

Building Approvals (MoM) (MAR)

1.0%

-5.5%

The rebound in business sentiment along with the recent pickup in global trade may produce a marked improvement in the labor market, and a positive development may increase the appeal of the higher-yielding currency as it dampens the RBA’s scope to lower the benchmark interest rate further. However, the slowdown in private consumption paired with the ongoing slack in the real economy may continue to drag on job growth, and we may see Governor Glenn Stevens embark on the easing cycle throughout 2013 in an effort to encourage a stronger recovery.

Potential Price Targets For The Release

View gallery

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Forex_AUDUSD-_Trading_the_Australia_Employment_Report_body_ScreenShot219.png, AUD/USD- Trading the Australia Employment Report

As the 50.0% Fibonacci retracement from the 2011 high to low (1.0230) fails to hold up as support, we anticipate a move back towards the 38.2% retracement around 1.000, and we should see the bearish trend continue to take shape as the relative strength index remains capped by the 67 figure. Nevertheless, former support – the 50.0% Fib – should act as resistance going forward, and the pair should continue to give back the rebound from back in 2012 (0.9580) as long as the RBA preserves a dovish tone for monetary policy.

How To Trade This Event Risk

Forecasts for a rebound in employment certainly casts a bullish outlook for the higher-yielding currency, and a positive development may set the stage for a long Australian dollar as market participants scale back bets for another rate cut. Therefore, if job growth tops market expectations, we will need to see a green, five-minute candle following the release to generate a long trade on two-lots of AUDUSD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first objective. The second target will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade hits its mark in an effort to secure our gains.

In contrast, the persistent slack in private sector activity may drag on hiring, and a dismal employment print should dampen the appeal of the Australian dollar as it fuels bets for lower borrowing costs. As a result, if the labor report disappoints, we will carry out the same setup for a short aussie-dollar trade as the long position laid out above, just in the opposite direction.

Impact that the change in Australia Employment has had on AUD during the last month

Period

Data Released

Estimate

Actual

Pips Change

(1 Hour post event )

Pips Change

(End of Day post event)

MAR 2013

04/11/2013 1:30 GMT

-7.5K

-36.1K

-37

-4

March 2013 Australia Employment

View gallery

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Forex_AUDUSD-_Trading_the_Australia_Employment_Report_body_ScreenShot215.png, AUD/USD- Trading the Australia Employment Report

The Australian economy shed 36.1K jobs in March to mark the biggest decline since March 2003, while the unemployment rate unexpected advanced to an annualized 5.6% from 5.4% even as the participation rate narrowed to 65.1% from 65.3%. The Australian dollar sold off following the dismal print, with the AUDUSD coming back up against the 1.0500 figure, but we saw the higher-yielding currency consolidate throughout the day as the pair closed at 1.0543.

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com.

Follow me on Twitter at @DavidJSong

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