The Australian dollar is likely to face increased selling pressures over the next 24 hours of trading as economists forecast employment to fall 20.0K in February and project the annual jobless rate to rise to a three-year high of 5.0% from 4.8% in the previous month, which would reinforce a dour outlook for future growth as the $1T economy teeters on the brink of a recession.
[B][U]Trading the News: Australia Employment Change
What’s Expected[/U][/B]
Time of release: [B]03/12/2009 00:30 GMT, 20:30 EST[/B]
Primary Pair Impact[B] : AUDUSD[/B]
Expected: -20.0K
Previous: 1.2K[B][U]
[/U][/B][U][B]Impact the Australia Employment Change had on AUDUSD over the last 2 months[/B][/U]
[U]January 2009 Australia Employment Change[/U]
The Australian economy added 1.2K jobs in January amid expectations for a 18.K drop in employment, and the unexpected improvement in the labor market suggests that the isle-nation may be able to avoid a recession as RBA Governor Glenn Stevens continues to take unprecedented steps to shore up the economy. Meanwhile, the breakdown of the report showed that full-time positions increased 33.7K during the month, while part-time employment slipped 32.6K from the previous month. Despite the improved outlook for the Australian labor market, policy makers still expect the jobless rate to ‘increase materially over the year ahead’ as firms continue to face fading demands from the global economy, and as trade conditions deteriorate, businesses are likely to slash their labor force as they cutback on production and investment in an effort to reduce costs.
[U]December 2008 Australia Employment Change[/U]
The Australian labor market shed 1.2K jobs in December, which was much lower than the 20K drop projected by economists, as firms increased part-time hiring for the holiday season. A deeper look into the report showed that part-time positions increased 42.8K during the month, while full-time jobs fell 43.9K from November. As a result, the drop in full-time employment pushed the annual rate of unemployment to a two-year high of 4.5% from 4.4% in the previous month, and conditions are likely to get worse as the economy teeters on the brink of a recession for the first time since 1991. In an effort to stem the downside risks for the $1T economy, RBA Governor Glenn Stevens stated that the central bank’s policy objectives are now ‘expansionary,’ and is widely expected to lower the benchmark interest rate further in order to keep the nation afloat however, as trade conditions falter, the outlook for the export-driven economy remains bleak.
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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][U]Bullish Scenario:[/U][/B]
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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.
[B][U]Bearish Scenario:[/U][/B]
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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[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 20.0K in February and project the annual jobless rate to rise to a three-year high of 5.0% from 4.8% in the previous month, which would reinforce a dour outlook for future growth as the $1T economy teeters on the brink of a recession. The GDP report for the isle-nation showed that the economy contracted for the first time in eight-years as economic activity slipped 0.5% in the fourth quarter, which lowered the annual rate of growth to 0.3% from a revised reading of 1.8% in the third quarter, and conditions are likely to get worse in the months ahead as the outlook for growth and inflation falter. A report by the Bureau of Statistics released earlier this month showed that company operating profits fell 6.5% from the third quarter, marking its first decline in over a year, while job advertisements in the region fell at a record pace in February, and the data suggests that households may turn increasingly pessimistic towards the economy as firms continue to scale back on production and employment in an effort to reduced costs. Despite the weakening outlook held by businesses and households, the Reserve Bank of Australia decided to adopt a neutral policy stance going forward as they expect the extraordinary measures taken on by the central bank and the government to provide ‘significant support’ to the economy, and held the benchmark interest rate steady at the 45-year low of 3.25% this month. As RBA Governor Glenn Stevens moves to the sidelines, long-term expectations for higher rates has certainly increased the appeal of the high-yielding currency however, as the International Monetary Fund forecasts a global recession for 2009, trade conditions are likely to deteriorate further, which should continue to weigh on the export-driven economy throughout the year. As the private-sector continues to face fundamental headwinds paired with increased turmoil in the banking sector, market participants have argued that the monetary approach taken on by the RBA underestimates the impact of the global crisis, and will ultimately fail to avoid a recession this year. As investors remain skeptical of the actions taken on by Governor Stevens, deteriorating fundamentals are likely to weigh on the exchange rate, while at the same time, as investors remain risk adverse, the aussie is likely to weaken further against the U.S. dollar as the reserve currency continues to benefit from safe-haven flows.
Trading the given event risk clearly favors a bearish forecast for the Australian dollar however, an unexpected rise in employment or an enhanced labor report like we’ve seen in the previous month will set the stage for a long aussie trade. Therefore, if employment falls 10.0K or less or pushes higher during the month, we will look for a green, five-minute candle following the release to confirm a buy entry on two lots of AUDUSD. Once these conditions are met, we will place our initial stop at the nearby swing low (or reasonable distance), and this risk will determine our first target. Our second target will be base on distraction, 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 contrary, economic activity is expected to weaken further as households face fading demands for employment, and as the outlook for global growth remains bleak, the labor market is likely to weaken further as businesses continue to cutback on spending. As a result, and in-line print or a drop of more than 20.0K in employment will lead us to sell the aussie-dollar, and we will follow the same setup for a short trade as the long position mentioned above, just in reverse.
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