[U][B]Trading the News: Australia Employment Change[/B][/U]
[U][B]What’s Expected[/B][/U]
Time of release: [B]10/07/2009 00:30 GMT, 20:30 EST[/B]
Primary Pair Impact : [B]AUDUSD[/B]
Expected: -10.0K
Previous: -27.19K
[U][B]Impact the Australia Employment Change had on AUDUSD over the last 2 months[/B][/U]
[U]August 2009 Australia Employment Change[/U]
Australian employment tumbled 27.1K in August amid expectations for a 15.0K decline, while the annual rate of unemployment held steady at 5.8 for the third month as discouraged workers left the labor force, and households may continue to face headwinds over the coming months as the government stimulus begins to taper off. The breakdown of the report showed full-time positions plunged 30.8K, while part-time jobs increased 3.8K from the previous month, and firms may continue to lower their temperament to retain workers in an effort to weather the slump in global trade. Nevertheless, as the $1T economy continues to skirt the global recession and expands 0.6% in the second-quarter, RBA Governor Glenn Stevens said that borrowing costs will need to rise from the “emergency” level, and speculation for a rate hike is likely to support the appreciation in the exchange rate throughout the second-half of the year.
[U]July 2009 Australia Employment Change [/U]
The Australian labor market unexpectedly added 32.2K jobs from June, driven by a 48.2K rise in part-time employment, while the annual rate of unemployment held steady at 5.8% for the second consecutive month in July, and business may continue to retain workers as policy makers hold an enhanced outlook for future growth. A deeper look at the report showed full-time position slipped 16.0K from the previous month, while the total number of working hours slumped at an annual pace of 2.9% from the previous year as businesses opt to lower shifts rather than trimming their staff. The data reinforces an improved outlook for the $1T economy as policy makers take unprecedented steps to stem the downside risks for growth and inflation, and market participants speculate the Reserve Bank of Australia to tighten policy over the coming months as the economic outlook improves.
[B]What To Look For Before The Release[/B]
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:
[B]How To Trade This Event Risk [/B]
The Australian dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast employment to fall 10.0K in September, and the downturn in the labor market is likely to hamper the prospects for a marked recovery as the government stimulus begins to taper off. Nevertheless, the $1T economy continued to skirt the global recession, with GDP expanding throughout the first half of the year, and firms may look to retain their work force as policy makers anticipate economic activity to improve going into the following year. Meanwhile, business confidencejumped to six-year high in August, with consumer sentiment improving for the fourth month in September, and the rebound in economic confidence reinforces an enhanced outlook for the nation as labor demands improve . Job advertisements in Australia rose for the second-month in September, while skilled vacancies increased for the third-month, and employment conditions should continue to stabilize over the coming months as the economy recovers from the global downturn. However, a report by the Bureau of Statistics showed the trade deficit held at A$1524M in August amid expectations for a drop to A$900M as exports slumped 2% from the previous month, while company operating profits slipped 7.8% from the first three-months of the year to mark the biggest decline since 2003, and firms may continue to scale back on production and employment throughout the second-half of the year in an effort to weather the downturn in global trade. As a result, Treasury Secretary Ken Henry expects “below trend growth” over the next two-years following the slump in employment paired with the downturn in wage growth, and stated that the stimulus has reached its peak in the June quarter as GDP unexpectedly expanded 0.6% from the first-three months of the year. Furthermore, Secretary Henry argued that “withdrawing the stimulus more quickly would risk stalling the economy and causing a steeper rise in the unemployment rate” however, the Reserve Bank of Australia surprised the markets this week after deciding to hike the benchmark interest rate by 25bp to 3.25% from the 49-year low of 3.00%. At the same time, Treasurer Wayne Swanbacked the central bank’s action and said that monetary policy remains “expansionary” as borrowing costs remain 400bp lower than the previous year, and went onto say that the stimulus will be “gradually withdrawn” as the private sector recovers. As the RBA forecasts economic activity to expand at an annual rate of 0.5% this year, a rebound in employment may lead the central bank to tighten policy further over the coming months, and long-term expectations for higher borrowing costs may continue to drive the Australian dollar higher as market sentiment improves.
Trading the given event risk favors a bearish outlook for the Australian dollar economists forecast the labor market to weaken further but nevertheless, price action following an enhanced labor report should set the stage for a long aussie-dollar trade as growth prospects improve. Therefore, if employment holds flat from the previous or unexpectedly increases, we will look for a green, five-minute candle following the release to confirm a buy entry on two-lots of AUD/USD. Once these conditions are met, we will set our initial stop at the nearby swing low, or a reasonable distance, and this risk will establish our first target. Our second objective will be based on discretion, and we will move the stop on the second-lot to breakeven once the first trade reaches its target in order to preserve our profits.
On the other hand, the slump in global trade paired with fears of a protracted recovery may lead firms to take additional steps to lower their cost structure, and a downturn in the labor market is likely to weigh on the exchange rate as the outlook for future growth remains uncertain. As a result, if employment falls 10.0K or greater from the previous month, we will favor a bearish forecast for the Australian dollar, and will follow the same setup for a short aussie-dollar trade as the long position mentioned above, just in reverse.
Visit the DailyFX Forex Stream for Real-Time News and Market Updates
[I]
To discuss this report contact David Song, Currency Analyst: <[email protected]>
[/I]
</p>