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AUD/USD, AUD/JPY & AUD/CAD: Australian Dollar Turns to Jobs Data

AUD/USD, AUD/JPY & AUD/CAD: Australian Dollar Turns to Jobs Data

2020-01-22 22:16:00
Rich Dvorak, Junior Analyst
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AUSTRALIAN DOLLAR FORECAST: AUD/USD, AUD/JPY & AUD/CAD PRIMED FOR VOLATILITY WITH AUSTRALIA LABOUR FORCE REPORT ON DECK

  • The Australian Dollar will be front and center during Thursday’s trading session as implied volatility on AUD/USD, AUD/JPY and AUD/CAD jump ahead of Australia employment data due
  • Reserve Bank of Australia (RBA) interest rate change expectations could respond dramatically to the upcoming Australia labour force report slated for release
  • A major downside surprise relative to market expectations or lingering sluggishness in Australian jobs growth could lead to additional dovish action from the RBA

AUD price action is set to heat up according to the latest Australian Dollar overnight implied volatility readings.

In fact, expected currency volatility in spot AUD/USD, AUD/JPY and AUD/CAD has climbed toward 3-month highs ahead of the Australia labour force report release due Thursday, January 23 at 00:30 GMT.

This is likely due to the sizable impact that monthly Australia jobs data can have on RBA interest rate change probabilities and, in turn, the Aussie.

AUSTRALIAN DOLLAR IMPLIED VOLATILITY & TRADING RANGES (24-H)

Chart of Australian Dollar Implied Volatility AUDUSD, AUDJPY, AUDCAD

A higher implied volatility reading is generally associated with greater risk or uncertainty perceived by forex options traders over the specified time frame.

Likewise, above-average implied volatility readings frequently coincide with high-impact economic data releases that can seriously sway market price action.

That said, the direction of the Australian Dollar is far from immune to the release of jobs data considering the monthly Australia labour force survey typically sparks an above-average response in AUD price action.

AUSTRALIA LABOUR FORCE REPORT – NET CHANGE IN EMPLOYMENT (MONTHLY)

Chart of Australia employment change monthly historical data

The median economist estimate is looking for a gain of 10,000 jobs for the headline net change in employment over December 2019. This compares to a monthly average of roughly 9,500 total job additions over the prior 3 periods.

Also noteworthy is how the total net change in employment – and more importantly the change in full-time employment – have both trended steadily lower over the last several months as illustrated in the chart above.

Correspondingly, further deterioration in the Australia labour market revealed in upcoming employment data could provide the RBA with another reason to juice its economy with even more accommodative monetary policy following 75-basis points worth of cuts last year.

On the other hand, a rebound in Australia job creation could reflect the influx of upbeat market sentiment owing to the recently signed US-China trade deal.

RBA CASH RATE (FUTURES-IMPLIED) – RESERVE BANK OF AUSTRALIA INTEREST RATE CHANGE PROBABILITIES

RBA Interest Rate Chart Implied Change Probabilities Reserve Bank of Australia Cash Rate

The Australian Dollar is thus anticipated to respond predominantly to fluctuations in RBA interest rate change expectations subsequent to the Australia labour force report for December. Overnight swaps are currently pricing nearly a 60% probability that the Reserve Bank of Australia slashes its benchmark interest rate by 25-basis points at the central bank’s upcoming meeting.

A disappointing jobs report could lead traders to believe the RBA will reiterate its dovish bias and cut the cash rate next month from its current 0.75% level whereas a healthy reading on Australian employment data has potential to steer the RBA away from cutting rates again.

AUD/USD PRICE CHART: DAILY TIME FRAME (SEPTEMBER 2019 TO JANUARY 2020)

AUDUSD Price Chart Australian Dollar Forecast

AUD/USD overnight implied volatility was just clocked at 8.5% and compares to its 20-day average reading of 6.1%. Judging by an overnight implied volatility reading of 8.5%, spot AUD/USD is expected to maintain a 60-pip trading range on Thursday between 0.6812-0.6872 with a 68% statistical probability.

AUD/USD BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -4% -28% -10%
Weekly 6% -19% -1%
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AUD/USD faces technical resistance posed by its 200-day simple moving average while confluent support is underpinned by the 61.8% Fibonacci retracement of the Aussie’s bullish leg from October to December last year. These aforementioned technical barriers, which align closely with the overnight options-implied trading range, may keep spot AUD/USD prices relatively contained.

AUD/JPY PRICE CHART: DAILY TIME FRAME (AUGUST 2019 TO JANUARY 2020)

AUDJPY Price Chart Australian Dollar Forecast

AUD/JPY is expected to be the most active Australian Dollar currency pair during Thursday’s trading session judging by its overnight-implied volatility of 11.7%. AUD/JPY overnight implied volatility of 11.7% compares to its 20-day average reading of 7.5%.

AUD/JPY BEARISH
Data provided by
of clients are net long. of clients are net short.
Change in Longs Shorts OI
Daily -2% -18% -9%
Weekly -5% -14% -8%
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Spot AUD/JPY prices are currently clinging onto its 50-day simple moving average, which could keep the direction of the Aussie relatively anchored. Nevertheless, spot AUD/JPY is expected to trade between 74.716-75.634 with a 68% statistical probability over the next 24-hours as derived from overnight forex options contracts.

AUD/CAD PRICE CHART: DAILY TIME FRAME (AUGUST 2019 TO JANAURY 2020)

AUDCAD Price Chart Australian Dollar Forecast

AUD/CAD will be worth keeping on the radar considering the BOC monetary policy decision just released early Wednesday. As such, the Australia labour force survey on deck for release has potential to exacerbate recent price action in spot AUD/CAD – or alternatively – send the currency pair quickly pivoting back lower.

AUD/CAD is estimated to range between 0.8930-0.9018 with a 68% statistical probability judging by its overnight implied volatility reading of 9.4%, which compares to its 20-day average reading of 5.7%.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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