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Australia Employment Offers a More Meaningful AUD Rebound

Australia Employment Offers a More Meaningful AUD Rebound

2013-08-07 22:00:00
David Song, Strategist
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Trading the News: Australia Employment Change

A second consecutive rise in Australian employment may encourage a more meaningful rebound in the AUDUSD as it dampens the Reserve Bank of Australia’s (RBA) scope to further embark on its easing cycle.

What’s Expected:

Time of release: 08/07/2013 1:30 GMT, 21:30 EDT

Primary Pair Impact: AUDUSD

Expected: 6.0K

Previous: 10.3K

DailyFX Forecast: -5.0K to 10.0K

Why Is This Event Important:

A 6.0K rise in employment may encourage the RBA to soften its dovish tone for monetary policy, but Governor Glenn Stevens may keep the door open to push the benchmark interest rate to a fresh record-low as the central bank continues to see the $1T economy growing below trend.

The Upside/Bullish Scenario

Release

Expected

Actual

House Price Index (QoQ) (2Q)

1.0%

2.4%

Private Sector Credit (MoM) (JUN)

0.3%

0.4%

HIA New Home Sales (MoM) (JUN)

--

3.4%

The pickup in private sector credit may help businesses to expand their labor force, and a marked pickup in job growth may generate a more meaningful rebound in the Australian dollar as it dampens bets for additional monetary support.

The Downside/Bearish Scenario

Release

Expected

Actual

Trade Balance (JUN)

804M

602M

ANZ Job Advertisements (MoM) (JUL)

--

-1.1%

Retail Sales (MoM) (JUN)

0.4%

0.0%

However, the persistent slack in the real economy may continue to drag on the labor market, and a dismal print may push the AUDUSD back towards the 2013 low (0.8846) as it fuels speculation for another rate cut.

How To Trade This Event Risk

Expectations for a rebound in employment highlights a bullish outlook for the aussie, and the market reaction may pave the way for a long Australian dollar trade should the data raise the outlook for growth. Therefore, if job growth climbs 6.0K or greater in July, we will need a green, five-minute candle following the release to consider a long trade on two-lots of AUDUSD. Should market conditions favor a bullish trade, 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 lock-in our gains.

In contrast, the persistent slack in the real economy may push businesses to scale back on hiring, and a weak jobs report prompt a selloff in the higher-yielding as it fuels bets for another rate cut. As a result, if Australia employment disappoints, we will implement the same setup for a short aussie-dollar trade as the long position laid out above, just in reverse.

Potential Price Targets For The Release

Forex_Australia_Employment_Offers_a_More_Meaningful_AUD_Rebound_body_ScreenShot263.png, Australia Employment Offers a More Meaningful AUD Rebound

The positive jobs report may encourage a more meaningful correction in the Australian dollar, which could trigger a move back towards the 61.8% Fibonacci retracement around 0.9210-20, and a blowout print may threaten the bearish trend carried over from earlier this year as it raises the argument for the RBA to retain a wait-and-see approach throughout the remainder of the year. However, a AUDUSD may face a shallow correction on the back of a negative employment report, and we will be watching the 78.6% retracement around 0.8710-20, which lines up nicely with the 38.2% expansion.

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)

JUL 2013

07/11/2013 1:30 GMT

0.0K

10.3K

+44

-27

July 2013 Australia Employment Change

Forex_Australia_Employment_Offers_a_More_Meaningful_AUD_Rebound_body_ScreenShot261.png, Australia Employment Offers a More Meaningful AUD Rebound

Australia added 10.3K jobs in June following a 0.7K decline the month prior, while the jobless rate unexpectedly climbed to an annualized 5.7% from a revised 5.6% in June as discouraged workers returned to the labor force. The Australian dollar traded higher following the rebound in employment, with the AUDUSD pushing above the 0.9250 region, but the higher-yielding currency struggled to hold its ground as the pair ended the day at 0.9186.

--- 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, please follow this link.

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