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AUD/USD: Trading the Australian Employment Report

AUD/USD: Trading the Australian Employment Report

2011-03-08 20:33:00
David Song, Currency Strategist
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Trading the News: Australia Employment Change

What’s Expected:

Time of release: 03/10/2011 00:30 GMT, 19:30 EST

Primary Pair Impact: AUDUSD

Expected: 20.0K

Previous: 24.0K

DailyFX Forecast: 10.0K to 22.0K

Why Is This Event Important:

The Australian economy is expected to add another 20.0K jobs in February following the 24.0K expansion in the previous month, and the ongoing improvement in the labor market could spark a bullish reaction in the local currency as the recovery gathers pace. At the same time, the annual rate of unemployment is anticipated to hold steady at 5.0% for the third consecutive month, and businesses may continue to increase their labor force throughout 2011 as the region benefits from the rise in global trade. In turn, the Reserve Bank of Australia may see scope to tighten monetary policy further this year, and the central bank may turn hawkish going forward as the rise in wage growth increases the risk for inflation. However, as China, the region’s largest trading partner, takes unprecedented steps to prevent the economy from overheating, the AUD/USD may continue to trend sideways over the near-term as the RBA Governor Glenn Stevens maintains a neutral tone for future policy.

Recent Economic Developments

The Upside

Release

Expected

Actual

NAB Business Confidence (FEB)

--

14

ANZ Job Advertisements (FEB)

--

1.2%

Trade Balance (JAN)

1550M

1875M

The Downside

Release

Expected

Actual

Company Operating Profits (QoQ) (4Q)

1.0%

-2.8%

Building Approvals (MoM) (JAN)

-3.3%

-15.9%

Private Capital Expenditure (4Q)

2.3%

1.3%

Business sentiment in Australia advanced to a one-year high in February, with job advertisements increasing for 10 consecutive months during the same period, and firms may increase their willingness to hire additional employees as the region benefits from the expansion in global trade. However, as the marked expansion in business investments cools, with firms facing higher input costs, the recovery in the labor market may taper off as the region copes with the aftermath of the flood. A dismal employment report may lead the RBA to retain its wait-and-see approach throughout the first-half of 2011 as the central bank aims to encourage a sustainable recovery.

Potential Price Targets For The Release

AUDUSD_Trading_the_Australian_Employment_Report_body_ScreenShot021.png, AUD/USD: Trading the Australian Employment Report

How To Trade This Event Risk

As employment is expected to increase for the 11th month in February, the economic development is likely to instill an improved outlook for future growth, and the market reaction to the labor report could set the stage for a long Australian dollar trade as the recovery gather paces. Therefore, if the isle-nation adds 20.0K jobs or more from the previous month, we will need to see a green, five-minute candle following the report to generate a buy entry on two-lots of AUD/USD. With these conditions met, we will place the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will establish our first target. The second objective 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 protect our profits.

On the other hand, firms in Australia may scale back on hiring given the ongoing weakness within the private sector, and a dismal employment report is likely to bear down on the exchange rate as the RBA maintains a cautious outlook for the real economy. As a result, if employment increases less than 10K in February, we will implement the same strategy for a short aussie-dollar trade as the long position mentioned above, just in the opposite direction.

Impact that the Australian Employment report 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)

Jan 2011

02/10/2011 00:30 GMT

17.5K

24.0K

-19

-63

January 2011 Australia Employment Change

Employment in Australia increased another 24.0K in January after expanding a revised 1.8K in the month prior, while the jobless rate held steady at an annualized 5.0% for the second consecutive month. A deeper look at the report showed full-time positions weakened 8.0K after rising 0.2% in December, while part-time employment advanced 32.0K following the 1.6K expansion in the previous month. As the region continues to benefit from the rise in global trade, the ongoing improvement in the labor market may gather pace going forward, and the Reserve Bank of Australia may see scope to tighten monetary policy further over the coming months as the rise in wage growth heightens the risk for inflation. However, the central bank may retain a wait-and-see approach throughout the first-half of 2011 as the region copes with the recent flood in Queensland, and a downturn in interest rate expectations could bear down on the exchange rate as investors weigh the prospects for future policy. The AUD/USD tipped higher immediately following the release, but the spike in the exchange rate was certainly short-lived as the pair ended the day at 1.0040.

AUDUSD_Trading_the_Australian_Employment_Report_body_ScreenShot022.png, AUD/USD: Trading the Australian Employment Report

Questions? Comments? Join us in the DailyFX Forum

Join Currency Strategist Ilya Spivak in the DailyFX Trading Room to cover the event LIVE!

View the Expo Presentation on ‘Trading the News’ For Additional Resources

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

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

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