AUD/USD: Trading the Change in Australian Employment

The Australian dollar may face increased selling pressures throughout the week as economists forecast employment to fall 20.0K in June, and the data could reinforce a weakening outlook for the region as businesses continue to scale back on production and employment in an effort to weather the downturn in global trade.

[U][B]Trading the News: Australia Employment Change

What’s Expected
[/B][/U]Time of release: [B]07/09/2009 01:30 GMT, 21:30 EST[/B]
Primary Pair Impact: [B]AUDUSD[/B]
Expected:- 20.0K
Previous: -1.7K

[B][U]Impact the Australia Employment Change had on AUDUSD over the last 2 months[/U][/B]

                                               [B]Period[/B]

                                   [B]Data Released[/B]

                                   [B]Estimate[/B]

                                   [B]Actual[/B]

                                   [B]Pips Change[/B]

         [B](1 Hour post event )[/B]

                                   [B]Pips Change[/B]

         [B](End of Day post event)[/B]

                                                     May 2009

                                   06/10/2009    01:30 GMT

                                   -30.0K

                                   [B]-1.7K[/B]

                                   -10

                                   +116

                                                     Apr 2009

                                   05/07/2009  01:30 GMT

                                   -25.0K

                                   [B]27.3K[/B]

                                   -3

                                   -1

[U]
May 2009 Australia Employment Change[/U]

                        The Australian economy lost 1.7K jobs in May amid expectations for a 30K drop in employment, and the data encourages an improved outlook for the region as the government takes unprecedented steps to stem the downside risks for growth and inflation. The breakdown of the report showed a 24.5K rise in part-time positions helped to counter the 26.2K drop in full-time employment, while the participation rate unexpectedly increased to 65.5% from 65.4% in the previous month. As growth prospects improve, the Reserve Bank of Australia is likely to hold the benchmark interest rate at the 49-year low of 3.00%, and long-term expectations for higher interest rates may continue to drive the Australian dollar higher over the near-term as policymakers anticipate economic activity to improve throughout the second half of the year.              

[U]April 2009 Australia Employment Change[/U]

                        The Australian labor market unexpectedly added 27.3K jobs in April amid expectations for a 25.0K drop in employment, with the jobless rate falling to 5.4% from 5.7% in March. A deeper look at the report showed full-time employment increased 49.1K during the month, with part-time positions falling 21.8K, while the participation rate slipped to 65.4% from 65.5% in the previous month. The data encourages an improved outlook for the $1T economy as policymakers take unprecedented steps to shore up the economy, and the Reserve Bank of Australia may bring an end to its easing cycle as growth prospects improve. Nevertheless, market participants project the unemployment rate to push higher over the near-term as the downturn in the global economy intensifies, and businesses may continue to scale back on production and employment as they face fading demands from home and abroad.             

[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:

                        [U][B]Bullish Scenario:[/B][/U]
         
         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.
                       [U][B]Bearish Scenario:[/B][/U]
         
         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.                               


[B]How To Trade This Event Risk
[/B]The Australian dollar may face increased selling pressures throughout the week as economists forecast employment to fall 20.0K in June, and the data could reinforce a weakening outlook for the region as businesses continue to scale back on production and employment in an effort to weather the downturn in global trade. At the same time, the 1Q GDP reading showed economic activity unexpectedly expanded in the first quarter, with the growth rate rising at an annual rate of 0.4%, and the rise fosters an improved outlook for future growth as the government pledges A$12B in public handouts and spends A$22B on infrastructure development to stimulate the $1T economy. However, a government report showed the trade deficit widened to A$ 556M in May, driven by a 5.0% drop in exports, while bank lending unexpectedly fell 0.1% in May as companies reduced spending and investments. Moreover, job advertisements slumped for the 14th consecutive month in June, while skilled vacancies slipped another 3.7% during the same period, and the data foreshadows a weakening outlook for the Australian labor market as businesses take additional steps to lower their cost structure. Nevertheless, the Reserve Bank of Australia held the benchmark interest rate at the 49-year low of 3.00% for the third consecutive month in July as policymakers expect economic activity to improve throughout the second half of the year, with Governor Glenn Stevens encouraging an enhanced outlook for future growth as he expects financial conditions in the global economy to improve this year. However, the central bank went onto say that there remains ‘some scope for further easing’ as the outlook for growth and inflation remains weak, and noted that labor demands throughout the region remains subdued as companies continue to postpone capital investments. Meanwhile, as the RBA holds an improved outlook for global growth, market participants speculate the board to tighten policy over the next 12-months, and long-term expectations for higher interest rates may continue to drive the Australian dollar higher against it currency counterparts over the near-term as market sentiment improves.

Trading the given event risk favors a bearish outlook for the Australian dollar but nevertheless, the less-than-expected drop in employment during the previous month has left the door for an upward surprise. Therefore, if employment falls 10K or less in June, 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. The 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 lock-in our profits.

On the other hand, the downturn in business spending paired with the slump in global trade is likely limit demands for employment over the near-term, and price action following the release could set the stage for a short AUD/USD trade. As a result, if employment falls 20.0K or more in June, we will favor a bearish outlook for the Australian dollar, and will follow the same strategy for a short aussie-dollar trade as the long position mentioned above, just in reverse.