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AUD/USD: Trading the Australia Employment Report

AUD/USD: Trading the Australia Employment Report

2011-05-10 20:16:00
David Song, Currency Strategist
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Trading the News: Australia Employment Change

What’s Expected:

Time of release: 05/12/2011 1:30 GMT, 21:30 EST

Primary Pair Impact:AUDUSD

Expected: 17.0K

Previous: 37.8K

DailyFX Forecast: 10.0K to 25.0K

Why Is This Event Important:

Employment in Australia is projected to increase another 17.0K in April after expanding 37.8K during the previous month, and the ongoing improvement in the labor market should spur a bullish reaction in the high-yielding currency as policy makers maintain a positive outlook for the region. As growth and inflation gathers pace, the Reserve Bank of Australia said monetary policy will have to be tightened “further at some point” in its quarterly report, and expects price growth “to be in the top part of the target band” in the coming years as the region benefits from the expansion in world trade. In turn, speculation for higher borrowing costs is likely to prop up the Australian dollar, but the central bank may carry over its wait-and-see approach going into the second-half of the year as the fundamental outlook for the global economy remains clouded with high uncertainty.

Recent Economic Developments

The Upside

Release

Expected

Actual

Trade Balance (MAR)

500M

1740M

Building Approvals (MoM) (MAR)

5.0%

9.1%

Private Sector Credit (MoM) (MAR)

0.4%

0.6%

The Downside

Release

Expected

Actual

NAB Business Confidence (APR)

--

5

Retail Sales (MAR)

0.5%

-0.5%

Producer Price Index (YoY) (1Q)

2.7%

2.9%

As the region continues to benefit from global trade, the ongoing improvement in private sector activity may encourage firms to expand their labor force throughout 2011, and a third consecutive rise in employment could lead the AUD/USD to make another run at 1.10 as interest rate expectations accelerate. However, as business confidence wanes, with households scaling back on spending, firms may keep a lid on employment as they face rising input costs. A dismal labor report could encourage the RBA to keep the interest rate on hold over the coming months, and the AUD/USD may retrace the rebound carried over from the previous week as investors scale back speculation for higher borrowing costs in 2011.

Potential Price Targets For The Release

AUDUSD_Trading_the_Australia_Employment_Report_body_ScreenShot029.png, AUD/USD: Trading the Australia Employment Report

How To Trade This Event Risk

Expectations for a second consecutive rise in employment certainly encourages a bullish outlook for the high-yielding currency, and the market reaction to the release could set the stage for a long Australian dollar trade as the economic recovery gathers pace. Therefore, if the isle-nation adds 17.0K jobs or more in April, we will need to see a green, five-minute candle subsequent to the data in order to establish a buy entry on two-lots of AUD/USD. Once these preconditions are fulfilled, we will set the initial stop at the nearby swing low or a reasonable distance from the entry, and this risk will generate our first target. The second objective will be based on discretion, and we will move the stop on the second lot to breakeven once the first trade reaches its mark in order to protect our profits.

On the other hand, firms may curb their willingness to expand their labor force as the face higher input costs paired with the ongoing weakness in private sector consumption, and the RBA may retain a neutral policy stance going into the second-half of the year in order to balance the risks for the region. As a result, if employment expands less than 10.0K or unexpectedly contracts from the previous month, we will implement the same strategy for a short aussie-dollar trade as the long position laid out above, just in reverse.

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 2011

04/07/2011 1:30 GMT

24.0K

37.8K

+30

+37

March 2011 Australia Employment

Employment in Australia increased 37.8K in March after contracting a revised 8.6K during the previous month, while the jobless rate surprisingly weakened to an annualized 4.9% from 5.0% to mark the lowest reading since December. A deeper look at the report showed full-time positions increased 32.1K after expanding 50.4K in February, while part-time jobs rose 5.7 after contracting 59.0K during the same period. The rebound in employment certainly encourages an improved outlook for the region as the Reserve Bank of Australia aims to encourage private sector growth, but the central bank may retain a wait-and-see approach throughout the first-half of the year as households scale back on consumption and increase their rate of savings. Indeed, the data sparked a rally in the Australian dollar, with the exchange rate extending the rally from earlier in the week, but the AUD/USD fell back from the high (1.0507) to settle at 1.0467 at the end of the day.

AUDUSD_Trading_the_Australia_Employment_Report_body_ScreenShot028.png, AUD/USD: Trading the Australia Employment Report

Questions? Comments? Join us in the DailyFX Forum

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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