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Trading the News: Australia Employment Change
Why Is This Event Important:
As market participants expect employment in Australia to expand for the ninth consecutive month in November, and the data could lead the Australian dollar to pare the decline from the previous month as growth prospects improves. However, as the rebound in global trade tapers off, with households scaling back on consumption, businesses may curb their temperament to expand their labor force as the fundamental outlook for the world economy remains clouded with uncertainties.
What’s Expected:
Time of release:12/09/2010 0:30 GMT, 19:30 EST
Primary Pair Impact :AUDUSD
Expected: 20.0K
Previous: 29.7K
Will This Be Market Moving (Scenarios):
The Australian economy is expected to add another 20.0K jobs in November following the 29.7K expansion in the previous month, while the jobless rate is projected to fall back to an annualized 5.2% after unexpectedly jumping to 5.4% in October. However, as the Reserve Bank of Australia anticipates to see “a more moderate pace of expansion in the period ahead,” the cautious tone held by the central bank could lead businesses to keep a lid on employment in 2011, and a dismal labor report could lead the RBA to maintain a wait-and-see approach throughout the beginning of the following year as it aims to encourage a sustainable recovery.
The Upside
Job advertisements in the $1T economy jumped 2.9% in November after expanding 0.7% in the previous month, while building permits advanced 9.3% in October to mark the first rise since March. As the economic recovery gathers pace, businesses may continue to increase production and employment throughout the remainder of the year, and a marked improvement in the labor market could spark increased speculation for additional monetary tightening, which could lead the AUD/USD to push back above parity.
The Downside
Economic activity in Australia increased 0.2% in the third quarter amid forecasts for a 0.4% expansion in the growth rate, while company profits unexpectedly slumped 1.5% during the same period to mark the first decline since the second quarter of 2009. As businesses face rising borrowing costs paired with the ongoing weakness within the real economy, firms may scale back on employment, and a dismal labor report could lead the AUD/USD to pare the sharp rally from the previous week as the outlook for future growth deteriorates.
How To Trade This Event Risk
Expectations for a rise in employment certainly favors a bullish outlook for the high-yielding currency, and price action following the release could set the stage for a long Australian dollar trade as growth prospects improve. Therefore, if payrolls increase 20.0K or greater in November, we will need a green, five-minute candle subsequent to the data to generate a buy entry onto two-lots of AUD/USD. 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 establish 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 reaches its mark in an effort to lock-in our profits.
In contrast, uncertainties surrounding the economic outlook paired with the slowdown in global trade could lead businesses to keep a lid on employment, and a dismal labor report could spark a sharp selloff in the exchange rate as interest rate expectations falter. As a result, if payrolls increase less than 5.0K or unexpectedly contract 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.
Potential Price Targets For The Event
Impact the change in Australia employment has had over the AUD during the last month
Period | Data Released | Estimate | Actual | Pips Change (1 Hour post event ) | Pips Change (End of Day post event) |
Oct 2010 | 11/11/2010 0:30 GMT | 20.0K | 29.7K | -2 |
October 2010 Australia Employment Change
Employment in Australia increased 29.7K in October, which exceeded forecasts for a 20.0K rise, while the jobless rate unexpectedly jumped to 5.4% from 5.1% during the same period as discouraged workers returned to the labor force. A deeper look at the report showed full-time positions slipped 14.1K after rising a revised 59.4K in September, while part-time positions increased 43.8K following a 9.8K drop in the previous month, and businesses may continue to expand their labor force going into the end of the year as the region benefits from the rise in global trade. As the economic recovery gathers pace, the Reserve Bank of Australia may look to tighten monetary policy further in order to stem the risks for inflation, but the uncertainties surrounding the fundamental outlook for the world economy could lead the central bank to adopt a wait-and-see approach going into 2011 as the rise in global trade cools. |  |
What To Look For Before The Release
Traders with access to market depth information via the FXCM Active Trader Platform may use it to gauge the potency of the economic data release as well as to shed some light on the market’s directional bias. Increasing volume ahead of the announcement will telegraph likely follow-through behind whatever move is to materialize, while an imbalance in available liquidity on the Bid versus the Offer side of the market will tell us the direction major institutions are likely favoring ahead of the announcement:
Bullish Scenario: If we see substantially deeper available liquidity on the Bid side of the market, this tells us that major price providers in the market are looking to buy the AUD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bullish bias on AUDUSD ahead of the data release. | Bearish Scenario: If we see substantially deeper available liquidity on the Offer side of the market, this tells us that major price providers in the market are looking to sell the AUD against the US Dollar. Considering that close to 60% of all FX market volume is cleared through just six top banks, we see it prudent to be on the same side of the trade as major institutions and will favor a bearish bias on AUDUSD ahead of the data release. |
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