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AUD/USD: Trading the Australian Employment Report

AUD/USD: Trading the Australian Employment Report

2011-10-11 18:57:00
David Song, Currency Strategist
Share:

Trading the News: Australia Employment Change

What’s Expected:

Time of release: 10/13/2011 00:30 GMT, 20:30 EST

Primary Pair Impact: AUDUSD

Expected: 10.0K

Previous: -9.7K

DailyFX Forecast: -10.0K to 15.0K

Why Is This Event Important:

Australia is expected to add 10.0K jobs in September after losing 9.7K positions in the previous month, and the rebound in employment is likely to spark a bullish reaction in the exchange rate as the data casts an improved outlook for the isle-nation. As economic activity gathers pace, the Reserve Bank of Australia may preserve its wait-and-see approach throughout the remainder of the year, and the central bank may talk down speculation for lower borrowing costs in an effort to curb the risk for inflation. However, the central bank may keep the door open to scale back the benchmark interest rate from 4.75% should the labor market weaken further, and Governor Glenn Stevens may continue to soften his hawkish tone for monetary policy as the slowing recovery dampens the outlook for inflation.

Recent Economic Developments

The Upside

Release

Expected

Actual

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

0.2%

0.6%

Trade Balance (AUG)

2000M

3100M

Private Sector Credit (AUG)

0.2%

0.2%

The Downside

Release

Expected

Actual

ANZ Job Advertisements (MoM) (SEP)

--

-2.1%

AiG Performance of Services Index (SEP)

--

50.3

AiG Performance of Manufacturing Index (SEP)

--

42.3

Greater demands for Australian goods paired with the expansion in private sector credit may encourage businesses to increase on hiring, and a rise in employment should help the AUD/USD to retrace the sharp decline from the previous month as growth prospects improve. However, the slowdown in production paired with the ongoing weakness within the real economy may bear down on labor market, and a dismal employment report is likely spark a bearish reaction in the exchange rate as the fundamental outlook for Australia deteriorates. In turn, the AUD/USD give back the advance from earlier this month, and the pair may threaten the rebound from 0.9390 as market participants see an increased argument for lower interest rates.

Potential Price Targets For The Release

AUDUSD_Trading_the_Australian_Employment_Report_body_ScreenShot017.png, AUD/USD: Trading the Australian Employment Report

How To Trade This Event Risk

Projections for a rebound in employment certainly reinforces a bullish outlook for the Australian dollar, and the market retraction could pave the way for a long Australian dollar trade as the fundamental outlook for the isle-nation improves. Therefore, if employment expands 10.0K or greater in September, we will need a green, five-minute candle following the report to establish 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 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 cost once the first trade reaches its mark in order to protect our winnings.

In contrast, businesses may scale back on hiring as the region faces a slowing recovery, and firms may keep a lid on employment over the coming months as the central bank adopts a cautious outlook for the region. As a result, if employment expands less than 10.0K or unexpectedly contracts from the previous month, we will utilize 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)

AUG 2011

09/08/2011 1:30 GMT

10.0K

-9.7K

-61

-64

August 2011 Australia Employment

Employment in Australia slipped another 9.7K in August after contracting a revised 4.1K in the previous month, while the jobless rate advanced to 5.3% during the same period to mark the highest reading since October 2010. A deeper look at the report showed a 12.6K drop in full-time positions, while part-time employment increased 2.9K after advancing 22.3K in the previous month. As the fundamental outlook deteriorates, the Reserve Bank of Australia may continue to soften its hawkish tone for monetary policy, and the central bank may ultimately scale back the benchmark interest rate from 4.75% in an effort to stimulate a sustainable recovery. The dismal labor report sparked a bearish reaction in the Australian dollar, with the AUD/USD slipping back below 1.0600, and the high-yielding currency struggled to hold its ground throughout the day as the exchange rate settled at 1.0573.

AUDUSD_Trading_the_Australian_Employment_Report_body_ScreenShot016.png, AUD/USD: Trading the Australian Employment Report

--- Written by David Song, Currency Analyst

To contact David, e-mail dsong@dailyfx.com. Follow me on Twitter at @DavidJSong

To be added to David's e-mail distribution list, send an e-mail with subject line "Distribution List" to dsong@dailyfx.com.

Questions? Comments? Join us in the DailyFX Forum

Join DailyFX 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

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