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AUD/USD: Trading the Change in Australian Employment

AUD/USD: Trading the Change in Australian Employment

2010-07-06 18:50:00
David Song, Currency Strategist
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Trading the News: Australia Employment Change

Why Is This Event Important:


However, the central bank may hold the cash rate steady in the second-half of the year as the outlook for global growth remains clouded with uncertainties, and Governor Glenn Stevens may look to support the real economy over the coming months as the fiscal stimulus tapers off.

What’s Expected:
Time of release:        07/08/2010 1:30 GMT, 21:30 EST
Primary Pair Impact :    AUDUSD
Expected:         15.0K
Previous:         26.9K

Will This Be Market Moving (Scenarios):


Employment in Australia is forecasted to increase 15.0K in June following the 26.9K rise in the previous month, while the jobless rate is anticipated to hold steady at 5.2% for the second-month, and labor conditions may continue to improve over the coming months as the isle-nation benefits from the marked expansion in the emerging economies. However, businesses may keep a lid on payrolls as they face tightening credit conditions paired with higher borrowing costs, and a dismal labor report could lead the Australian dollar to pare the advance following the central bank interest rate decision as the outlook for future growth deteriorates.

The Upside

As China, Australia’s biggest trading partner, leads the global recovery, the robust expansion in Asian may lead businesses to increase production and employment, and the central bank may see increased scope to raise the cash rate further over the coming months as the rebound in economic activity gathers pace. As a result, a bigger-than-expected rise in employment could drive the aussie to work its way back above the 20-Day SMA at 0.8577 and lead the exchange rate to retrace the decline from the previous month.

The Downside


However, the weakness in the private sector paired with the pullback in business confidence suggest firms may curb their willingness to expand their labor force, and an unexpected decline in employment could trigger a selloff in the Australian dollar as investors weigh the outlook for future policy. Accordingly, a diminishing outlook for future growth paired with the pullback in inflation expectations could lead the RBA to keep rates on hold in the second-half of the year, and speculation for

How To Trade This Event Risk

Expectations for a rise in employment favors a bullish outlook for the high-yielding currency, and price action following the release could set the stage for a long Australian dollar trade as the outlook for future growth improves. Therefore, if the $1T economy adds 15.0K or more in June, we will need to see a green, five-minute candle subsequent to the data to confirm a buy entry on two-lots of AUD/USD. Once these conditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance, and this risk will generate our first objective. The second target will be based on discretion, and we will move the stop on the second lot to cost once the first trade reaches its mark in an effort to lock-in our profits.

On the other hand, rising borrowing costs paired with the drop in business sentiment could lead to a dismal employment report, and a slump in the labor could lead the RBA to maintain a loose policy stance going forward as it aims to balance the risks for the region. As a result, if employment expands less that 5.0K or unexpectedly declines from the previous month, we will favor a bearish outlook for the high yielding currency, and will implement the same strategy for a short aussie-dollar trade as the long position laid out above, just in reverse.

07.06_TTN1

Impact Australia Employment Change has had over the AUD during the past month

07.06_TTN2

May 2010 Australia Employment Change

The Australian labor market improved for the third consecutive month in May, with employment increasing 26.9K from the previous month to top forecasts for a 20.0K rise, while the jobless rate unexpected slipped to 5.2% from 5.4% in April to mark the lowest level since January. The breakdown of the report showed fill-time positions increased 36.4K after rising 40.1K in April, while part-time jobs slipped another 9.4K after slipping 4.8K in the month prior, and conditions are likely to improve going forward as the isle-nation benefits from the marked expansion in the emerging economies. As a result, the Reserve Bank of Australia may see scope to tighten monetary policy further in the second-half of the year, but the fragile state of the global financial system may lead the central bank to maintain a neutral policy stance over the coming months as it continues to assess the impact of its recent rate hikes. 07.06_TTN3

What To Look For Before The Release

Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:

Bullish Scenario:

If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the AUD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on AUDUSD ahead of the data release.
Bearish Scenario:

If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the AUD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on AUDUSD ahead of the data release.
00001_AUD 00002_AUD

Questions? Comments? Join us in the DailyFX Forum

To discuss this report contact David Song, Currency Analyst: instructor@dailyfx.com

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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