3 Things to Remember When Trading the Australian Jobs Report

Looking for another economic event to trade this week? Apart from the RBNZ and SNB central bank decisions, you might also want to look into the upcoming Australian jobs release. Here are some things to remember when playing this report:

1. Talks of RBA rate cuts in 2015

To start off, let’s take a look at the bigger picture and put things in the proper context. With financial institutions speculating about an RBA rate cut for next year, forex traders appear to have a strong bearish bias for the Australian dollar. Apart from weaker price pressures, the recent downturn in employment is also to blame for this dovish outlook.

Just yesterday, National Australia Bank (NAB) joined its peers Westpac and AMP Capital in forecasting interest rate cuts for 2015, as its business confidence index teetered close to reflecting pessimism. Analysts over at Credit Suisse, Deutsche Bank, CIMB, and Saxo Bank are also predicting potential policy easing from the RBA.

2. Expectations of weak hiring

All this talk of deteriorating labor market conditions has been weighing on the Aussie recently, as forex market participants are expecting to see a mere 15,200 increase in employment for November. This would be lower than the previous month’s 24,100 gain and might be enough push the jobless rate up from 6.2% to 6.3%.

As I always mention though, with strong expectations comes the stronger possibility of disappointment. With most forex traders already anticipating weak jobs figures, there’s a good chance of seeing a sudden Aussie rally in case the actual results come in line with expectations or surprise to the upside.

3. AUD/USD price action

Now let’s take a look at how AUD/USD reacted in the past two releases, one of which came in weaker than expected while the other showed strong results:

September employment change

AUD/USD 1-hour Forex Chart

For the month of September, the employment reading came in weaker than expected, as the economy chalked up a surprise loss of 29,700 jobs versus the estimated 17,600 gain. This led to an initial sharp drop, which was quickly reversed until the day’s U.S. trading session. The selloff resumed for the rest of the week though, partly spurred by the market’s strong pro-dollar bias.

October employment change

AUD/USD 1-hour Forex Chart

In October, the Australian economy saw a stronger than expected 24,100 increase in hiring, outpacing the expected 20,300 gain and keeping the jobless rate steady at 6.2%. This saw a bit of follow-through until the U.S. session, before the gains were reversed until the end of the trading week.

Quite a tough one, huh? Based on these charts, it seems that AUD/USD hasn’t been very consistent with its reactions. In both cases though, it’s worth noting that the pair usually sees a reversal right around the start of the U.S. trading session.