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AUD/USD- Trading the Australian Employment Report

AUD/USD- Trading the Australian Employment Report

David Song, Strategist

Trading the News: Australia Employment Change

What’s Expected:

Time of release: 04/11/2013 1:30 GMT, 21:30 EDT

Primary Pair Impact: AUDUSD

Expected: -7.5K

Previous: 71.5K

DailyFX Forecast: -20.0K to -5.0K

Why Is This Event Important:

The Australian economy is expected to shed 7.5K jobs in March and the drop in employment may drag on the AUDUSD as it fuels speculation for a rate cut. As the $1T economy remains mired in an uneven recovery, the Reserve Bank of Australia may continue to embark on its easing cycle over the coming months, and we may see Governor Glenn Stevens push the benchmark interest rate to a fresh record-low in an effort to stem the downside risks for growth and inflation.

Recent Economic Developments

The Upside

Release

Expected

Actual

NAB Business Confidence (MAR)

--

2

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

0.4%

1.1%

Trade Balance (FEB)

-1000M

-178M

The Downside

Release

Expected

Actual

ANZ Job Advertisements (MoM) (MAR)

--

-1.5%

AiG Performance of Construction Index (MAR)

--

39.0

Company Operating Profits (QoQ) (4Q)

-1.0%

-1.0%

The pickup in private consumption along with the recent improvement in global trade may encourage businesses to ramp up on hiring, and a positive development may heighten the appeal of the Australian dollar as it dampens the RBA’s scope to deliver another rate cut. However, the persistent slack in the real economy paired with the weakening outlook for future profits may drag on the labor market, and we may see the RBA keep the door open to lower the cash rate further in an effort to encourage a stronger recovery.

Potential Price Targets For The Release

Forex_AUDUSD-_Trading_the_Australian_Employment_Report_body_ScreenShot147.png, AUD/USD- Trading the Australian Employment Report

Although the AUDUSD threatened the 1.0500 figure, we may see the downward trend in the aussie-dollar continue to take shape should the employment report fuel speculation for a rate cut. However, a positive development may foster a more meaningful breakout in the exchange rate, and we may see the pair work its way back towards the 1.0600 region should the data instill an improved outlook for growth.

How To Trade This Event Risk

Forecasts for a drop employment certainly instills a bearish outlook for the high-yielding currency, but a positive development may set the stage for a long Australian dollar as market participants scale back bets for another rate cut. Therefore, if the labor report tops market expectations, we will need a green, five-minute candle subsequent to the release to establish a long trade on two-lots of AUDUSD. Once these conditions are met, 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 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 ongoing weakness in the real economy may drag on hiring, and a dismal print should dampen the appeal of the Australian dollar as it fuels bets for a rate cut. As a result, if employment contracts 7.5K or greater in March, we will implement the same strategy 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)

FEB 2013

03/14/2013 0:30 GMT

10.0K

71.5K

+62

+78

February 2013 Australia Employment

Forex_AUDUSD-_Trading_the_Australian_Employment_Report_body_ScreenShot148.png, AUD/USD- Trading the Australian Employment Report

Australian employment increased another 71.5K in February to mark the fastest pace of growth since July 2000, while the jobless rate held steady at an annualized 5.4% amid forecasts for a 5.5% print. The surge in job growth propped up the Australian dollar, with the AUUDSD climbing above the 1.3050 region, and the higher-yielding currency continued to gain ground throughout the day as the pair closed at 1.0383.

--- Written by David Song, Currency Analyst T

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

Follow me on Twitter at @DavidJSong

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